Suppose you know the following information about two stocks:

Stock	Average Monthly Return	Annualized Risk-Free Rate	Standard Deviation of Monthly Returns
A	1.5%	0.3%	1.8%
B	0.8%	0.3%	2.2%

Based on the information in the table, which stock has a higher return?

Stock A

Stock B

Based on the information in the table, which stock has a higher level of risk?

Stock A

Stock B

There are several ways in which investors can measure a stocks risk. One is to examine the volatility of stock returns by using the reward-to-variability ratio, also known as the Sharpe index.

Based on the information in the table, the Sharpe index for stock A is:

0.3333

0.4667

0.6667

1

Based on the information in the table, the Sharpe index for stock B is:

0.1364

0.1818

0.2273

0.2955

Based on the Sharpe ratios, which stock offers more expected excess return per unit of risk?

Stock A

Stock B