Assumption: Apparently there is an error in the question and also choice 1 has actually been review as, "Security A would certainly have actually a higher hazard premium than Security B", only then answer I and II just deserve to be schosen.

Standard deviation of a protection is a meacertain of defense threat. If a protection has actually a greater standard deviation, it suggests the danger is high.

You are watching: Security a has a higher standard deviation of returns than security b. we would expect that:

A defense that has actually more hazard would have a greater risk premium to compensate for the added risk assumed.

Sharpe proportion denotes excess return per unit of total danger i.e conventional deviation.

In the offered instance, security A has a greater traditional deviation than defense B. This suggests that Security A would certainly have actually a higher threat premium than Security B and also additionally considering that the variation of retransforms is high (given that traditional deviation is high), the array of returns for Security A in any given year would certainly be better than the likely range of retransforms for Security B.


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Answer from: tatibean26

The answer is: Both I and II are correct

Explanation:

Due to the fact that Security A has a greater traditional deviation of retransforms than security B, we recognize that it also has a higher risk premium than defense B. (The higher the danger, the better the threat premium).

Following that logic, the supposed returns of security A have to also be higher than the retransforms of security B (the better the risk, the greater the expected returns).


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