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6 February, 06:19

The risk-free rate is 2%; Stock A's expected return is 8% and its beta is 1.2; Stock B's expected return is 7.5% and its beta is. 89. Which stock has a better risk-adjusted returns?

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  1. 6 February, 06:45
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    Stock B has better stock adjusted returns

    Explanation:

    We can compare the risk-adjusted returns of two stocks by calculating the Treynor ratio.

    Treynor ratio formula = (Stock return - risk free rate) / Stock beta

    stock A = (8% - 2%) / 1.2 = 0.05

    stock B = (7.5% - 2%) / 0.89 = 0.0618

    Stock B has better stock adjusted returns
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