If asset A's return is exactly two times asset B's return,then following risk return tradeoff,the standard deviation of asset A should be ________ times the standard deviation of asset B.
A)3
B)2
C)1
D)4
E)5

Question

Quizplus · Accepted Answer

According to risk return tradeoff, higher returns are associated with higher risk. Since asset A has twice the return of asset B, it must also have higher risk. Therefore, the standard deviation of asset A should be greater than the standard deviation of asset B. Since it is exactly two times, the answer is B, i.e., the standard deviation of asset A should be 2 times the standard deviation of asset B.

If Asset A's Return Is Exactly Two Times Asset B's