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Security A has a higher standard deviation of returns than security B. We would expect that: I. Security A would have a risk premium equal to security B. II. The likely range of returns for security A in any given year would be higher than the likely range of returns for security B. III. The Sharpe ratio of A will be higher than the Sharpe ratio of B.

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Answer:

The answer is: Both I and II are correct

Explanation:

Since Security A has a higher standard deviation of returns than security B, we know that it also has a higher risk premium than security B. (The higher the risk, the higher the risk premium).

Following that logic, the expected returns of security A should also be higher than the returns of security B (the higher the risk, the higher the expected returns).

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