Tammy Welsh Has Two Investment Options to Choose From

question 97

Essay

Tammy Welsh has two investment options to choose from. The stocks of both ABC Inc. and XYZ Corp. are currently trading at $200. ABC Inc. is paying a dividend of $10, and is expected to trade at $215 in a year's time. XYZ Corp. is paying a higher dividend of $25. However, the price of XYZ's stock is only expected to go up to $203 a year from now. Experts are estimating inflation to be about 2% in a year's time.
A) In which stock should Tammy invest and why?
B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

• A) In which stock should Tammy invest and why?
• B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

Differentiate between quantitative and categorical variables.

Compare and contrast distributions across different samples or groups.

Apply knowledge of statistics to real-world contexts, such as sports, natural phenomena, and medical data.

Critically analyze summaries of datasets, identifying key features and potential outliers.

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Definitions:

Hindsight Bias

The tendency to believe, after learning an outcome, that one would have foreseen it.

Availability Heuristic

A cognitive bias that causes people to overestimate the likelihood of events based on their ability to recall examples more easily.

Confirmation Bias

The habit of looking for, comprehending, selecting, and reminiscing about information that validates an individual's prior convictions or theories.

Hindsight Bias

The tendency to believe, after learning an outcome, that one would have foreseen it, also known as the "knew-it-all-along" effect.