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Running head: MANAGERIAL STATISTICS
MANAGERIAL STATISTICS:
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MANAGERIAL STATISTICS
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4. A stock index fund invests in a very large number of different stocks, so the return you
get from it is roughly the average return for the stocks in the index.
(a)
Which of these two choices would give you a better chance of tripling your money
within a month: investing all your money in the index fund, or investing all your money in
a few randomly chosen stocks that make up the index?
The choice that would give a better chance of tripling the money is the second choice which
entails investing all the money in a few randomly chosen stocks that make the index since one
will be able to select stocks that offer high returns rather than an index fund that averages the
return of the stocks.
(b)
Which of these two choices would give you a better chance of losing almost all of
your money within a month: investing all your money in the index fund, or investing all
your money in a few randomly chosen stocks that make up the index?
The second choice of investing all the money in a few randomly chosen stocks that make up the
index fund gives a better chance of losing almost all of the money within a few month since, the
risk associated with this choice is not diversified as that of investing in an index fund.
22. Twenty-five independent polls of one thousand random people each are taken during
the course of an extremely close election campaign. People in the poll are asked which of
the two candidates they favor and the percentage who favor the incumbent candidate is
computed for each ...