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

Question

Quizplus · Accepted Answer

According to risk return tradeoff, higher returns are expected with higher risk. If asset A's return is exactly two times asset B's return, then A is considered to have higher return than B. Therefore, A should also have higher risk (higher standard deviation) than B. Since A's return is exactly two times B's return, the standard deviation of A should be two times the standard deviation of B. Hence, the answer is B.

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