George wants to pick a stock for his Diversified Hedge Fund. The fund has holdings in every country with a stock market. George is trying to decide which asset he should add to his portfolio: Stock A or Stock B
Expected return, Standard deviation and beta values for the two stocks are outlined in the table below. Which stock is best for George's portfolio and why?
Stock A Stock B Risk-Free Asset
Expected Return 8% 12% 5%
Standard Deviation 12% 22%
Beta 1 2
A) Stock A because it has a lower Beta.
B) Stock A because it has more return per unit of standard deviation.
C) Stock B because it has a higher return.
D) Stock B because it has a higher Treynor Index with respect to standard deviation.
E) Stock B because it has a higher Treynor Index with respect to Beta.
E
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