You have been provided the following annual return data about 4 shares over a sample period 2020-2024.Which security would you choose to invest funds in if your sole objective was to minimise risk per unit of return?[Fill in the blank]

Question

BlackTom AI · Accepted Answer

We start by restating the data and the task to ensure clarity: you are given annual return data for four shares (A–D) over 2020–2024 and asked which security minimizes risk per unit of return. The goal is to pick the share with the smallest risk relative to its return, i.e., the lowest risk-to-return ratio (roughly, standard deviation of returns divided by mean return).

Option A: Share E. This option is not directly supported by the table provided, which only lists Shares A–D. Since Share E is not present in the data, evaluating its risk/return is impossible from the given numbers, making this choice unreliable.

Option B: Share C. Looking at Share C’s returns: 7%, -12%, 32%, 15%, -13%. The mean is relatively small (about 3.8%), but the variability is extremely high due to the large positive 32% and large negative -12% and -13% values. The standard deviation would be very large, yielding a poor risk-per-unit-of-return figure. This makes it unlikely to minimize risk per unit of return.

Option C: Share D. For Share D: -3%, -11%, 22%, 2%, -1%. The mean is around 1.8%, and the values swing between negative and positive with a substantial dispersion. The computed standard deviation is moderate to high, leading to a relatively large risk per unit of return compared with more stable options. This would not minimize risk per unit of return.

Option D: Share B. Share B has returns: 12%, 12%, 11%, 9%, 10%. The mean return is about 10.8%, and the values are clustered tightly around the mean with only small deviations (roughly within a few percentage points). The standard deviation is much smaller than for the other shares, resulting in a very favorable risk-to-return ratio. This makes Share B the strongest candidate for minimizing risk per unit of return among the given options.

Option E: Share A. Share A’s returns are 10%, 7%, 11%, 9%, 18%. While the mean is relatively high (around 11%), the year 2024 shows a notably large jump to 18%, increasing volatility. The higher dispersion raises the standard deviation, which worsens the risk-per-unit-of-return measure compared with Share B.

In summary, by comparing both the average performance and the consistency (variability) of returns across years, Share B demonstrates the smallest variability relative to its high average return. The other options either have substantially higher dispersion (Share C and Share D) or data issues (Share E not present, and Share A has a notable outlier year) that inflate risk per unit of return.

Therefore, the answer that minimizes risk per unit of return among the provided options is the one corresponding to Share B, which, in the given list, is option D.

You have been provided the following annual return data about 4 shares over a sample period 2020-2024.Which security would you choose to invest funds in if your sole objective was to minimise risk per unit of return?[Fill in the blank]

View Explanation

Log in for full answers

Similar Questions

RAROC (Risk-Adjusted Return on Capital) is calculated as:

The Sharpe ratio

The Sharpe ratio

The Sharpe ratio

The Sharpe ratio

The Sharpe ratio

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler