Question: Consider the following two stocks, A and B. Stock A has an expected return of 10%, 10% standard deviation, and a beta of 1.20. Stock

Consider the following two stocks, A and B. Stock A has an of 10%, 10% standard deviation, and a beta of 1.20. Stock B has an of 14%, 25% standard deviation, and a beta of 1.80. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered a good buy if we include the stock in a well diversified a because _________.
a. B, it offers better Sharpe ratio
b. A, it offers better alpha
c. A, it offers better Sharpe ratio
d. B, it offers better alpha

Step by Step Solution

★★★★★

3.39 Rating (174 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

c A it offers better Sharpe ratio Security A would be considered a good buy if we include the stock ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

1019-B-C-A-C-P-A(4640).docx

120 KBs Word File

Students Have Also Explored These Related Cost Accounting Questions!

You are a new supervisory accountant at Sportsman Company, reporting to the controller. On your second day with Sportsman, a junior accountant quit his job with no notice. One day later, it is time...

Consider the following two regression lines for stocks A and B in the following figure. a. Which stock has higher firm-specific risk? b. Which stock has greater systematic (market) risk? c. Which...

Consider the following two regression curves for stocks A and B. a. Which stock has higher firm- specific risk? b. Which stock has greater systematic (market) risk? c. Which stock has higher R-...

Consider the price paths of the following two stocks over six time periods: Neither stock pays dividends. Assume you are an investor with the disposition effect and you bought at time 1 and right now...

Consider the following two stocks, A and B. Stock A has an expected return of 10%, 10% standard deviation, and a beta of 1.20. Stock B has an expected return of 14%, 25% standard deviation, and a...

6. Consider the following two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.20. Stock B has an expected return of 14% and a beta of 1.80. The expected market rate of return...

Consider the following two stocks, A and B. Stock A has an expected return of 10%, 10% standard deviation, and a beta of 1.20. Stock B has an expected return of 14%, 25% standard deviation, and a...

7. Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security...

Consider the following two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.20. Stock B has an expected return of 14% and a beta of 1.80. The expected market rate of return is...

QUESTION 13 Suppose we have two stocks A and B. Stock A has an expected return of 10%, a standard deviation of return of 20% and a beta of 1.5. Stock B has an expected return of 8.4%, a standard...

6. Portfolio P consists of 2 assets (b and s). If Er_b)= 5%, o_b=8%, E(r_s)= 10%, o_s=19%, the correlation coefficient is 0.2. Then, answer the following three questions. The E(r_p) and the o_p are...

Rock Designs, Inc. is a jewelry store located in Miramar Beach, Florida. After Valentines Day, the store often has excess cash to get it through the three- month slow season. The primary stockholder,...

A hollow cavity made of aluminum has dimensions a = 4 cm and d = 3 cm. Calculate Q of the TE101 mode for (a) b = 2 cm, and (b) b = 3 cm

Which of the following best describes expenses? Multiple choice question. Decrease in equity from delivering goods or services. Increase in equity from delivering goods or services. Outflows of...

In 2019, Jason Jones, a director of MeatInTheBox met Cameron Charles, the owner and executive chef of TrendFoods, at a party in Balmain. Cameron was fascinated to learn that Jasons family had some...

An inexperienced bookkeeper prepared the following bank reconciliation statement: On 1 October 20.7, the bank account of Baige services has a favourable balance of R3 370. Additional information (a)...

1). An $800 note that bears interest at 9% matures in 180 days. What is the present value of the note after three-quarters of the term if money is worth 10%?rn 2). A retailer who found he could not...

After graduating from college, Michael and his spouse move to San Francisco to start their street sanitation business. The business qualifies for the new Qualified Business Deduction (QBI). The...

Describe the physical constraints on meeting customer requirements. Is it possible to collaborate with competitors, from competing supply chains, to achieve mutual gains? If yes, think of examples...

Why were people in Canada in the nineteenth century sometimes willing to be paid by cheque rather than with gold, even though they knew that there was a possibility that the cheque might bounce?

Explain how the dipole moments of FCl (0.9 D) and 1Cl (0.7 D) can be so similar.

Chlorine is more electronegative than phosphorus. Predict the dipole moment of PCl5.

Although carbon?carbon double bonds are shorter than carbon?carbon single bonds, all of the carbon?carbon bonds of benzene are the same length. Explain. H. H C. H H Benzene H H

Draw the datapath and corresponding registers / counters and ALU as shown in Figure 1 . You are more than welcome to use your pervious ALU design ( Lab 2 ) in your circuit.

2 punts QUESTION Mike's Place has total assets of $152,080, a debt equity ratio of 62, and net income of $14,342 What is the return on equity! For the toolbar, press ALT F10 (PC) OR ALT FF10Mac) 1...

5. An appraisal specialist has applied multiple regression analysis to prepare a mass appraisal model for this Edmonton data. Four variations of this model have been prepared, all using PRICE as the...