Asset A has an expected return of 15% and a Sharpe ratio of .4. Asset B has an expected return of 20% and a Sharpe ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______.
A) asset A
B) asset B
C) no risky asset
D) can't tell from the data given
The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should __________.
A) buy stock X because it is overpriced
B) buy stock X because it is underpriced
C) sell short stock X because it is overpriced
D) sell short stock X because it is underpriced