Suppose you know the following information about two stocks: Stock Average Monthly Return Annualized Risk - Free
Question:
Suppose you know the following information about two stocks:
Stock
Average Monthly Return
Annualized RiskFree Rate
Standard Deviation of Monthly Returns
A
B
Based on the information in the table, which stock has a higher return?
Based on the information in the table, which stock has a higher level of risk?
There are several ways in which investors can measure a stocks risk. One is to examine the volatility of stock returns by using the rewardtovariability ratio, also known as the Sharpe index.
Based on the information in the table, the Sharpe index for stock A is:
Based on the information in the table, the Sharpe index for stock B is:
Based on the Sharpe ratios, which stock offers more expected excess return per unit of risk?
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown