Answer : The risk reward ratio for Cornhusker Enterprises is 0.75, while that for Mustang Associates is 0.90.
Since the risk-reward ratio for Mustang Associates is higher, it's risk-reward ratio is worse.
In this question, we first need to calculate the risk-return ratio for both the stocks.
The risk-reward ratio express risk (standard deviation) per unit of expected return (mean).
We can calculate the risk-reward ratio (coefficient of variation) by using the following formula:
[tex] Risk-reward ratio = \frac{\sigma }{\mu} [/tex]
where
σ = Standard deviation
μ = Expected Return on a security.
Cornhusker Enterprises:
[tex] Risk -reward Ratio = (0.15/0.20) [/tex]
[tex] Risk- reward ratio = 0.75 [/tex]
Mustang Associates:
[tex] Risk -reward Ratio = (0.09/0.10) *100 [/tex]
[tex] Risk- reward ratio = 0.90 [/tex]
