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14 July, 07:14

Asset A has an expected return of 8% and a standard deviation of 12%. Asset B has an expected return of 10% and a standard deviation of 20%. A. A dominates B B. B dominates A C. Both of the above D. None of the above

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  1. 14 July, 09:20
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    B) B dominates A

    Explanation:

    A has expected return of 8%, and 12% standard deviation. This means 12% of the time it is not so, meaning it should work 88% of the time.

    B has expected return of 10%, and 20% standard deviation. This means 20% of the time it is not so, meaning it should work 80% of the time.

    For A, 8x88 = 704

    For B, 10x80 = 800

    B dominates.
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