Question

You want to invest for one year. Given data which stock you should choose? You should write 'Stock A' or 'Stock B'.

Price	Stock A	Stock B
Beginning of first year	$100.00	$98.00
End of the first year	$105.00	$106.00
End of the second year	$110.00	$110.00
End of the third year	$120.00	$118.00
Standard deviation	2.43%	2.32%

Answer 1

Price	Stock A	Average Return for Stock A	Stock B	Average Return of Stock B
Beginning of first year	$100.00	-	$98.00	-
End of the first year	$105.00	5%	$106.00	8.16%
End of the second year	$110.00	4.76%	$110.00	3.77%
End of the third year	$120.00	9.09%	$118.00	7.27%
Average Return	6.28%		6.40%
Standard deviation	2.43%		2.32%
Co-Variance (Standard Deviation/Average Return)		2.43/6.28 = 0.39		2.32/6.40 = 0.36

We will invest in Stock B as it has lower Co-Variance