2013 AICPA BEC QUESTION

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    Topic
  • May 24, 2013 at 12:11 am #177718
    flop310
    Member

    Hello,

    I am having trouble understanding the answer to this question. Please help! Thank you!

    An accountant has been retained by a company as an investment advisor for its employees. Research of historical rates of return yields the following information:

    Type of Investment

    Mean Return

    Standard Deviation

    Common stocks 1

    2%

    20%

    Long-term corporate bonds

    6%

    8%

    Intermediate-term government bonds

    5%

    5%

    U.S. Treasury bills

    4%

    3%

    Which of the following investments has the greatest reward/risk ratio if a return’s standard deviation is an accurate assessment of investment risk?

    a. Common stocks.

    b. Long-term corporate bonds.

    c. Intermediate-term government bonds.

    d. U.S. Treasury bills.

    Answer D.

Viewing 4 replies - 1 through 4 (of 4 total)
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  • May 24, 2013 at 12:24 am #413868
    TaRenee
    Member

    I'm not sure if the way I did it is correct… but I just took the reward(mean return) and divided it by the risk(standard deviation) and ….. the US Treasury Bill had the highest ratio.

    I'm not sure if that is the correct way to work the problem…. let's see if anybody else has any ideas

    REG [75] 02.27.13(1)
    AUD [82] 04.15.13(1)
    BEC [79] 05.29.13(1)
    FAR [62] 08.26.13(1) [76] 02.24.14(2) - God is able!!! 🙂

    Licensed NC CPA

    May 24, 2013 at 12:35 am #413869
    ORcpaHOPEFUL
    Member

    I did the same thing as @TaRenee 🙂

    FAR: PASSED!! 64, 68, 79 on 2/27/13!
    AUD: PASSED!! 73, 93 on 4/5/13!!!
    BEC: PASSED!! 75 (phew) on 5/24/13!
    REG: PASSED!!! 77 on 8/7/13 I AM DONE!!!!!

    Experience: got it!
    Ethics Exam: PASSED on first try (what a waste of money)

    May 24, 2013 at 12:55 am #413870
    flop310
    Member

    Ok, perfect! Thank you!

    May 24, 2013 at 3:16 am #413871
    Kodiak
    Member

    I know the answer says D, but wouldn't you think that T-bills would be the LEAST risky investment and have the lowest ratio? Common stock is on that list and t-bills have a virtually guaranteed return. Am I thinking about this backwards?

    AUD - Pass
    FAR - Pass
    BEC - Pass
    REG - Nov

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