A rational investor is choosing to invest in either Fakebook stock, which is a tech company, or Abala Land, a real estate company. Both are hypothetical Philippine stocks. Their expected returns are 19% and 15%, and standard deviations of 39% and 30%, respectively. What will he most likely do? Invest in Fakebook stock because it earns more than Abala Land stock. Invest in Abala stock because it has a higher Sharpe ratio of 0.50 compared to Fakebook’s 0.49. Do not invest in Fakebook stock because it has a higher coefficient of variation of 2.05 than Abala Land’s 2.0. Invest in Abala stock, because it is less risky than Fakebook stock.
A rational investor is choosing to invest in either Fakebook stock, which is a tech company, or Abala Land, a real estate company. Both are hypothetical Philippine stocks. Their expected returns are 19% and 15%, and standard deviations of 39% and 30%, respectively. What will he most likely do? Invest in Fakebook stock because it earns more than Abala Land stock. Invest in Abala stock because it has a higher Sharpe ratio of 0.50 compared to Fakebook’s 0.49. Do not invest in Fakebook stock because it has a higher coefficient of variation of 2.05 than Abala Land’s 2.0. Invest in Abala stock, because it is less risky than Fakebook stock.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A rational investor is choosing to invest in either Fakebook stock, which is a tech company, or Abala Land, a real estate company. Both are hypothetical Philippine stocks. Their expected returns are 19% and 15%, and standard deviations of 39% and 30%, respectively. What will he most likely do?
Invest in Fakebook stock because it earns more than Abala Land stock.
Invest in Abala stock because it has a higher Sharpe ratio of 0.50 compared to Fakebook’s 0.49.
Do not invest in Fakebook stock because it has a higher coefficient of variation of 2.05 than Abala Land’s 2.0.
Invest in Abala stock, because it is less risky than Fakebook stock.
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