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

Question

Quizplus · Accepted Answer

According to the risk return trade-off, higher returns are correlated with higher risk. Since asset A has a higher return than asset B, it should also have a higher standard deviation (risk). The question states that asset A's return is exactly two times asset B's return, meaning that the difference in risk between the two assets is not extreme. Therefore, the standard deviation of asset A should be approximately two times the standard deviation of asset B. Therefore, the best answer is Choice C.

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