Question

Over a one-month period, stock A had a mean daily closing price of 125.4 and a standard deviation of 7.5. By contrast, stock B had a mean daily closing price of 76.8 and astandard deviation of 7.5.
Which stock was more volatile?
Stock A
Stock B
They are equally volatile.

Answer 1

To determine which stock is more volatile, we can use the coefficient of variation (CV), which is calculated as the standard deviation divided by the mean. This allows us to compare the relative volatility of the two stocks, regardless of their mean prices.

For stock A:
- Mean (A) = 125.4
- Standard Deviation (A) = 7.5

Coefficient of Variation for stock A (CV_A) = Standard Deviation / Mean
CV_A = 7.5 / 125.4 ≈ 0.0598 or 5.98%

For stock B:
- Mean (B) = 76.8
- Standard Deviation (B) = 7.5

Coefficient of Variation for stock B (CV_B) = Standard Deviation / Mean
CV_B = 7.5 / 76.8 ≈ 0.0974 or 9.74%

Now we can compare the two coefficients of variation:
- CV_A ≈ 5.98%
- CV_B ≈ 9.74%

Since CV_B is greater than CV_A, stock B is more volatile than stock A.

Thus, the answer is:
**Stock B**.