A Stock Has an Expected Return of 12 Percent and a Standard

question 32

Multiple Choice

A stock has an expected return of 12 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent. Given this data, which of the following statements is correct?

• A) The two assets have the same coefficient of variation.
• B) The stock investment has a better risk-return trade-off.
• C) The bond investment has a better risk-return trade-off.
• D) The stock investment and the bond investment have the same diversifiable risk.

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Definitions:

Face Validity

The extent to which a test or assessment appears effective in terms of its stated aims to those taking or observing it.

Frequency, Intensity, Duration

Metrics used to describe and assess the characteristics of an event or activity, particularly in contexts like exercise, therapy, and research.

Creaming

The practice of selectively choosing the best or most profitable customers or clients, often leading to discrimination against those perceived as less desirable.

Anorexia

A serious eating disorder characterized by an intense fear of gaining weight and a distorted body image, leading to self-imposed starvation and excessive weight loss.