Consider the following sample statistics computed from the returns on two invest

Question

Consider the following sample statistics computed from the returns on two investments A and B: Investment A:

formula158.mml = 10 and s = 5 Investment B: formula158.mml = 7 and s = 3

a-1. Which investment provides the higher return? Investment B Investment A

a-2. Which investment provides less risk?

Investment B or Investment A

b-1. Given a risk-free rate of 1.45%, calculate the Sharpe ratio for each investment. (Round your answers to 2 decimal places.)

                              Sharpe Ratio

Investment A         __________

Investment B         __________

b-2. Which investment provides the higher reward per unit of risk?

Investment B or Investment A

#5

Explanation / Answer

a1) Investment A gives high returns as variability of A is greater than Variability of B

a2) Investment A give less risk as (7-3,7+3)< ( 10-5,10+5)

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