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?

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

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:

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

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