Please help me solve this question:
The risk-free rate is 2%. Stock A is expected return is 18% with a beta of 1.7 Stock B expected return is 15% with a beta of 1.3. What is the risk-reward ratio of each and which is the better choice of ignoring the investor risk preference?
risk reward ratio = (expected return - risk free rate) / beta
for stock A
=> (18%-2%) / 1.7
=>9.41.
for stock B
=>(15%-2%) / 1.3
=>10.
A risk taking investor will even go for stocks with lesser risk reward ratio (i.e stock A here).
A conservative investor will go for stocks with a higher risk reward ratio (i.e stock B here).
Please help me solve this question: The risk-free rate is 2%. Stock A is expected return...
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