You are comparing between two single stocks to invest in, A and B ( they are not
ID: 2738634 • Letter: Y
Question
You are comparing between two single stocks to invest in, A and B (they are not included in a portfolio). The first one (A) has a 25% standard deviation and can generate a return of 15% when T-bills is paying 5%. The second one has a 20% standard deviation and a return of 20%. Based on data, the beta of the first single stock portfolio is 1.2 and the second one is 2. The market return is 12.5%. Which investment should you choose?
A, it has higher alpha
A, it has better Sharpe ratio
B, it has higher alpha
B, it has better Sharpe ratio
A.A, it has higher alpha
B.A, it has better Sharpe ratio
C.B, it has higher alpha
D.B, it has better Sharpe ratio
Explanation / Answer
c.B, it has higher alpha than A