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Your broker Vinny calls up and asks you to consider three stocks that he thinks are...

Your broker Vinny calls up and asks you to consider three stocks that he thinks are just dynamite. Stock A has an expected return of 10% and a standard deviation of 5% Stock B has an expected return of 8% and a standard deviation of 6% Stock C has an expected return of 6% and a standard deviation of 3% Which (if any) of the three stocks above is dominated by another? Explain your answer.

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Answer #1

Higher the standard deviation higher should be the expected return and vice versa.

Stock A dominates Stock B because Stock A has a higher expected return (10%) and lower standard deviation (5%) as compared to that of Stock B.

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