The expected rate of return and standard deviations, respectively for four stocks are given below: $$\begin{array} { l l }
\mathrm { OPQ } & 11\%,8\%\
\mathrm { RST } & 11\%,9 \% \
\mathrm { UVW } & 12\%,10 \% \
\mathrm { XVZ } & 12 \% ,8\%
\end{array}$$ Which investment offers the highest expected return relative to its standard deviation?
A) OPQ
B) RST
C) UVW
D) XYZ

Question

The expected rate of return and standard deviations, respectively for four stocks are given below: $$\begin{array} { l l } 
\mathrm { OPQ } & 11\%,8\%\
\mathrm { RST } & 11\%,9 \% \
\mathrm { UVW } & 12\%,10 \% \
\mathrm { XVZ } & 12 \% ,8\%
\end{array}$$ Which investment offers the highest expected return relative to its standard deviation?
A) OPQ
B) RST
C) UVW
D) XYZ

Quizplus · Accepted Answer

The highest expected return relative to its standard deviation is determined by calculating the return-to-risk ratio for each stock. The stock with the highest ratio offers the highest expected return for its level of risk. For stock XVZ, the ratio is $12\% / 8\% = 1.5$, which is the highest among the options provided.

The Expected Rate of Return and Standard Deviations, Respectively for Four