Exercise $3-45$ Static

Consider the following summary measures for the annual returns for Stock $1$ and Stock $2$ over the past $13$ years.

Stock $1$: x$=9\mathrm{.}62\%$ and s $=23\mathrm{.}58\%$

Stock $2$: x$=12\mathrm{.}38\%$ and s $=15\mathrm{.}45\%$

a$.$ Which stock had the higher average return?

multiple choice $1$

Stock $1$

Stock $2$

b$-1.$ Which stock was riskier over this time period?

multiple choice $2$

Stock $1$

Stock $2$

b$-2.$ Does the stock with the higher reward also have more risk?

multiple choice $3$

Yes

No

c$-1.$ Given a risk$-$free rate of $3\%,$ which stock has the higher Sharpe ratio?

multiple choice $4$

Stock $1$

Stock $2$

c$-2.$ What does this ratio imply?

multiple choice $5$

Stock $2$ is more correlated with the overall market.

Stock $1$ is more correlated with the overall market.

Stock $2$ offers more reward per unit of risk compared to Stock $1.$

Stock $1$ offers more reward per unit of risk compared to Stock $2$