Question 1

Your friend is also familiar with Ford stock, and thinks they should not own any of it."Look, I put this table together to compare Ford to WWE.Ford has a lower average return, and more risk!Why does anyone buy Ford at all!?"

Stock Average Annual Return Average Annual Standard Deviation

WWE 12.3% 21.3%

Ford 7.3% 28.5%

Is your friend correct that a stock with a higher standard deviation should necessarily have a higher expected return?Why or why not?Four or fewer clear and thoughtful sentences should suffice.

Higher standard deviation does not necessarily have higher expected return,

Standard deviation is used to estimate the extent to which a variable moves from its mean.

Higher standard deviation means higher volatility of returns of an asset, which means returns are more variable than stable.

Higher standard deviation means price range will be large, as the variability between the prices and mean will be large.

Question 2

Your friend also inherited 100 shares of Wells Fargo stock.When they inherited the shares, they were worth $62.55 per share, but are now worth $47.48 per share.Your friend wants to "wait until the shares get back up to at least $62.55" per share before selling them.What do you think about this strategy?In expectation, will your friend be better off by waiting to sell until the stock is worth at least $62.55 per share? Four or fewer clear and thoughtful sentences should suffice.

If reasons why you bought the stocks are seem to be valid then one should bargain, and with the low price you can buy more of stocks.

If fall in price states that initial analysis was wrong, then re analysis of stock is needed.

If at current price you would still buy the stock then keeping it is appropriate.

If you found out that buying was a mistake then sell it.