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?

I would invest in the company with a smaller standard deviation of it's return rate

Explanation:

Standard deviation is when individual data points differ from the mean by a measure of the average amount. The smaller the standard deviation, the less risky an investment will be.

Accounting Rate of Return is the ratio of the average net income

to the average capital cost.

In this case both companies have the same average rate of return but one has a higher standard deviation to rate of return. Since both companies have same average rate of return but one has a higher standard deviation, the one with the larger standard deviation poises more risk.

It is safer to invest in the company with a lower standard deviation considering the fact they have the same ARR.

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