Stocks A, B, and C have expected returns of 24 percent, 24 percent, and 20 percent, respectively, while their standard deviations are 48 percent, 30 percent, and 30 percent, respectively. If you were considering the purchase of each of these stocks as the only holding in your portfolio and the risk-free rate is 0 percent, which stock should you choose? (Round answers to 2 decimal places, e.g. 15.25.) Coefficient of variation of Stock A enter the coefficient for stock A rounded to 2 decimal places Coefficient of variation of Stock B enter the coefficient for stock B rounded to 2 decimal places Coefficient of variation of Stock C enter the coefficient for stock С rounded to 2 decimal places Which Stock?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Stocks A, B, and C have expected returns of 24 percent, 24 percent, and 20 percent, respectively, while their standard deviations are 48 percent, 30 percent, and 30 percent, respectively. If you were considering the purchase of each of these stocks as the only holding in your portfolio and the risk-free rate is 0 percent, which stock should you choose? (Round answers to 2 decimal places, e.g. 15.25.)
|
Coefficient of variation of Stock A
|
enter the coefficient for stock A rounded to 2 decimal places | |
|---|---|---|
|
Coefficient of variation of Stock B
|
enter the coefficient for stock B rounded to 2 decimal places | |
|
Coefficient of variation of Stock C
|
enter the coefficient for stock С rounded to 2 decimal places |
| Which Stock? |
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