You observe the following information regarding Company A and Company B: • Company A has a...

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You observe the following information regarding Company A and Company B: • Company A has a...

You observe the following information regarding Company A and Company B:

• Company A has a higher expected return than Company B.

• Company A has a lower standard deviation of returns than Company B.

• Company A has a higher beta than Company B.

Given this information, which of the following statements is CORRECT?

a. Company A has a higher coefficient of variation than Company B.

b. Company A’s returns will be negative when Company B’s returns are positive.

c. Company A has less market risk than Company B.

d. Company A has more company-specific risk than Company B.

e. Company A has a higher Sharpe ratio than Company B.

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Answer 1

Answer #1

Option E is correct. Company A has a higher Sharpe ratio than Company B.

Sharpe Ratio is given by : - Expected Return – Risk free Return Standard Deviationof Stock

Sharpe Ratio will be higher if return is higher and if Standard Deviation is low because Standard Deviation is denominator. Lower the denominator higher the value.

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Answer 2

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