Which Share Is Likely to Further Reduce Risk for an Investor

question 12

Multiple Choice

Which share is likely to further reduce risk for an investor currently holding his portfolio in a well-diversified portfolio of common share?

• A)Share A
• B)Share B
• C)There is no difference between A or B
• D)You cannot tell from the information given The figures below show plots of monthly excess returns for two shares plotted against excess returns for a market index.

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Definitions:

Contribution Margin Ratio

A metric that reveals the percentage of sales revenue that exceeds variable costs and contributes to covering fixed costs and generating profit.

Margin of Safety

Represents the extent to which sales can drop before a business reaches its break-even point.

Units

Units refer to the individual items or quantities that are produced, sold, or held in inventory.

Degree of Operating Leverage

A financial metric that measures the sensitivity of a company's operating income to its sales volume, indicating how a change in sales affects profits.