Rank the Following Three Stocks by Their Risk-Return Relationship, Best

question 80

Multiple Choice

Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an average return of 33 percent and standard deviation of 40 percent. The average return and standard deviation of WholeMart are 10 percent and 20 percent; and of Fruit Fly are 19 percent and 33 percent.

• A) Night Ryder, WholeMart, Fruit Fly
• B) WholeMart, Fruit Fly, Night Ryder
• C) Night Ryder, Fruit Fly, WholeMart
• D) Fruit Fly, Whole Mart, Night Ryder

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Definitions:

Operating Leverage

Operating leverage is a measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs a company has.

Pretax Income

Income earned by a company before taxes are deducted, indicating the profitability of a company's core operations.

Sales Increase

The rise in the amount of products or services sold by a company, usually compared to a previous period.

Contribution Margin

The amount by which sales revenue exceeds variable costs, representing the contribution towards covering fixed costs and generating profit.