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 beta of 1 80 The expected market rate of return is 9 and the risk free rate is 5 Security would be consider...

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

Consider the following two stocks, A and B. Stock A has an expected return of 10%, 10%

Question:

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
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...