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Qso-510.2-2 Stock Scenario Analysis

Decent Essays

Sou Phonyothy
QSO-510

2-2 Scenario Analysis: Stock Options
As a financial advisor, you are assigned a new client who is considering investing in one of two stocks, A or B.
The table below shows information about the performance of stocks A and B last year. Return Standard Deviation
Stock A 15 % 8.3%
Stock B 14% 2.1%
1. As a financial advisor, are there factors other than return and risk that should be considered in making this decision?

Before involving yourself with stocks, one must be aware of the diverse issues that affect stocks. Having a more substantial historical data set for both stocks should be measured if available, to observe how the stock has performed beforehand is to use as an indication of how it will play out in the future. Using past yearly or monthly returns on capital to better analyze the variance of the past returns of each capital. Also understanding the client’s risk tolerance would be helpful as well to determine the best possible decision between stocks.
2. Based on these factors, what stock would you recommend to the client? Without having much information about the two possible stocks, as well as …show more content…

The Standard Deviation is much smaller at 6.2% compared to Stock A. “Standard deviation is calculated based on the mean.” (WHAT IS STANDARD DEVIATION, n.d.) The space of each data point from the mean is squared, summed and averaged to find the variance. The difference is a result of taking the mean of the data points, subtracting the mean from each data point individually, squaring each of these results and then taking another mean of these squares. Ordinarily, the smaller a stock’s standard deviation, the less volatile or risky it is. The higher the standard differential, the more scattered the profits are, consequently is more dangerous. The additional 1% of the profit produced by Stock A is not worth the risk associated with Stock

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