Let's analyze the information given for each stock to determine which one would best reduce risk for the investor.
### Stock Analysis
#### Stock A:
- 52-Week High / Low: [tex]$87.54 / $[/tex]32.21
- Dividend (Div): [tex]$0
- Price-to-Earnings (P/E) Ratio: 36
- Close Price: $[/tex]85.43
Observations:
- The P/E ratio of 36 is quite high, indicating that the stock is potentially overvalued.
- The dividend is zero, providing no income through dividends.
#### Stock B:
- 52-Week High / Low: [tex]$9.68 / $[/tex]6.25
- Dividend (Div): [tex]$0.05
- Price-to-Earnings (P/E) Ratio: 20
- Close Price: $[/tex]6.98
Observations:
- The P/E ratio of 20 is moderate.
- The dividend is fairly low, offering minimal income through dividends.
#### Stock C:
- 52-Week High / Low: [tex]$37.11 / $[/tex]35.92
- Dividend (Div): [tex]$0.75
- Price-to-Earnings (P/E) Ratio: 7.9
- Close Price: $[/tex]36.87
Observations:
- The P/E ratio of 7.9 is relatively low, suggesting the stock is potentially undervalued.
- The dividend is significantly higher than the other stocks, providing a good income through dividends.
- The price spread between the 52-week high and low is quite narrow, indicating lower volatility and stability.
### Conclusion
To reduce risk, the investor should focus on:
- Lower P/E ratio, indicating that the stock is less likely to be overvalued and potentially has more stable earnings.
- Steady or high dividend yields, offering regular income and suggesting company profitability.
- Lower volatility, as indicated by a narrow price spread, meaning less dramatic price swings and potentially more stability.
Based on these criteria, Stock C is most preferable because:
- It has a low P/E ratio of 7.9, indicating lower valuation risk and potentially stable earnings.
- It offers a high dividend of $0.75, suggesting more reliable income.
- The narrow price spread (52-week high and low close together) indicates lower volatility and more stability.
Therefore, the investor should choose Stock C because:
- Option 3: Stock C's lower P/E ratio means it is least likely to fail.
- Option 4: Stock C's price spread and dividend suggests stability of earnings.
So the correct choice is Stock C.
