Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an average return of 33 percent and standard deviation of 40 percent. The average return and standard deviation of WholeMart are 10 percent and 20 percent; and of Fruit Fly are 19 percent and 33 percent.
A) Night Ryder, WholeMart, Fruit Fly
B) WholeMart, Fruit Fly, Night Ryder
C) Night Ryder, Fruit Fly, WholeMart
D) Fruit Fly, Whole Mart, Night Ryder

Question

Quizplus · Accepted Answer

The risk-return relationship is often evaluated by the Sharpe ratio, which is the return in excess of the risk-free rate divided by the standard deviation. Without a risk-free rate provided, we can simplify by comparing returns to standard deviation directly. Night Ryder has the highest return but also the highest risk, making it potentially the best for those willing to accept high risk. Fruit Fly has a moderate return and risk, placing it in the middle. WholeMart has the lowest return but also the lowest risk, making it the least favorable for those seeking high returns for their risk.

Rank the Following Three Stocks by Their Risk-Return Relationship, Best