Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.
A) Rail Haul, Idol Staff, Poker-R-Us
B) Idol Staff, Rail Haul, Poker-R-Us
C) Poker-R-Us, Idol Staff, Rail Haul
D) Idol Staff, Poker-R-Us, Rail Haul

Question

Quizplus · Accepted Answer

The risk-return relationship can be assessed by comparing the ratio of average return to standard deviation for each stock. A higher ratio indicates a better risk-return tradeoff. For Rail Haul, the ratio is 0.8 (8%/10%); for Idol Staff, it's 0.5 (10%/20%); and for Poker-R-Us, it's 0.4 (6%/15%). Thus, Rail Haul offers the best risk-return relationship, followed by Idol Staff, and then Poker-R-Us.

Rank the Following Three Stocks by Their Risk-Return Relationship, Best