Suppose you know the following information about two stocks:

Stock

Average Monthly Return

Annualized Risk$-$Free Rate

Standard Deviation of Monthly Returns

A $0\mathrm{.}9\%0\mathrm{.}6\%1\mathrm{.}8\%$

B $0\mathrm{.}8\%0\mathrm{.}6\%1\mathrm{.}7\%$

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 stock$$s 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:

$0\mathrm{.}0833$

$0\mathrm{.}1167$

$0\mathrm{.}1667$

$0\mathrm{.}3333$

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

$0\mathrm{.}0706$

$0\mathrm{.}0941$

$0\mathrm{.}1176$

$0\mathrm{.}2471$

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

Stock A

Stock B