You observe the following information regarding Companies X and Y:

-Company X has a higher expected return than Company Y.
-Company X has a lower standard deviation of returns than Company Y.
-Company X has a higher beta than Company Y.

Given this information,which of the following statements is CORRECT?
A) Company X has more diversifiable risk than Company Y.
B) Company X has a lower coefficient of variation than Company Y.
C) Company X has less market risk than Company Y.
D) Company X's returns will be negative when Y's returns are positive.
E) Company X's stock is a better buy than Company Y's stock.

Question

You observe the following information regarding Companies X and Y:
​
-Company X has a higher expected return than Company Y.
-Company X has a lower standard deviation of returns than Company Y.
-Company X has a higher beta than Company Y.
​
Given this information,which of the following statements is CORRECT?
A) Company X has more diversifiable risk than Company Y.
B) Company X has a lower coefficient of variation than Company Y.
C) Company X has less market risk than Company Y.
D) Company X's returns will be negative when Y's returns are positive.
E) Company X's stock is a better buy than Company Y's stock.

Quizplus · Accepted Answer

Company X has a lower standard deviation of returns relative to its expected return, indicating a lower coefficient of variation than Company Y. This means for its level of expected return, Company X has less relative variability or risk, making B the correct choice. Choices A, C, D, and E cannot be determined as correct based solely on the given information.

You Observe the Following Information Regarding Companies X and Y