Question

Asset A has an expected return of 8% and a standard deviation of 12%. Asset B has an expected return of 10% and a standard deviation of 20%. A. A dominates B B. B dominates A C. Both of the above D. None of the above

Answer 1

Answer:

B) B dominates A

Explanation:

A has expected return of 8%, and 12% standard deviation. This means 12% of the time it is not so, meaning it should work 88% of the time.

B has expected return of 10%, and 20% standard deviation. This means 20% of the time it is not so, meaning it should work 80% of the time.

For A, 8x88 = 704

For B, 10x80 = 800

B dominates.