Suppose you wish to invest money safely and are trying to decide between stock options in two companies. The average rates of return are the same for both companies but, one company has a much larger standard deviation of its rates of return. a. Which company should you invest in? The company with the larger standard deviation The company with the smaller standard deviation b. Why is this the better choice?
Inverse Normal Distribution
The method used for finding the corresponding z-critical value in a normal distribution using the known probability is said to be an inverse normal distribution. The inverse normal distribution is a continuous probability distribution with a family of two parameters.
Mean, Median, Mode
It is a descriptive summary of a data set. It can be defined by using some of the measures. The central tendencies do not provide information regarding individual data from the dataset. However, they give a summary of the data set. The central tendency or measure of central tendency is a central or typical value for a probability distribution.
Z-Scores
A z-score is a unit of measurement used in statistics to describe the position of a raw score in terms of its distance from the mean, measured with reference to standard deviation from the mean. Z-scores are useful in statistics because they allow comparison between two scores that belong to different normal distributions.
Suppose you wish to invest money safely and are trying to decide between stock options in two companies. The average rates of return are the same for both companies but, one company has a much larger standard deviation of its rates of return. a. Which company should you invest in?
- The company with the larger standard deviation
- The company with the smaller standard deviation
b. Why is this the better choice?
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