According to the definitions given in the text, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and returns of 1%, which stock is riskier?

(A) Stock A

(B) Stock B

(C) they are equally risky

(D) cannot determine from the information given

(A) Stock A

Explanation:

A greater standard deviation is interpreted as a volatile stock. The price of the investment changes over time with a broad range, which is undesarible for the management of investment portafolios. There is also a correlation between risk and estimated return, when the commercial activity related with the stock has a stable performance, is commonly secure, and that is the reason why is offered a low rate of return.

In comparision with the second option, the Stock A has a greater volatility and higher return rate.