Provide an Appropriate Response

question 9

Essay

Provide an appropriate response.
-When you invest your money in a savings account, the standard deviation of the annual return is small. When you invest your money in the stock market, the standard deviation of your annual return can be high. In which of the situations below would knowledge of the standard deviation be more important? Explain your thinking. A: A 25-year old man will invest money in a mutual fund and plans to leave his money there for a long period. B: A 63-year old man nearing retirement will invest money in a mutual fund. He will only be able to invest for a short period and will then need to withdraw his money.

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Definitions:

Variable Cost

A cost that varies directly with the level of production or volume, such as materials and labor directly involved in the production process.

Least-squares Method

A statistical technique used to determine the line of best fit by minimizing the sum of the squares of the differences between observed and estimated values.

High-low Method

A technique used in cost accounting to determine the variable and fixed components of a cost by analyzing the highest and lowest levels of activity.

Variable Cost

Expenses that fluctuate in direct proportion to the amount of production or sales, including items like labor and materials.