A U.S. investor is considering two stocks and wishes to select one of them for his portfolio. Data on these stocks follow. Assume that the U.S. risk-free rate is 6 percent.
Stock Country Average Return Past 5 Years Standard Deviation
A United States 12% 30%
B Poland, listed as ADR 14% 50%
A. Calculate the Sharpe index for each stock.
B. Which stock would you prefer for your portfolio? Explain
C. Would you five special considerations to B because it is a foreign stock? Explain