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Question:
Consider the following statements:
Statement 1: The Sharpe ratio for commodities as an asset class has historically been higher than bonds but lower than stocks.
Statement 2: The volatility of commodity prices tends to be higher than the volatility for reported consumer price inflation.
Which of the following is most likely?
A
Only Statement 1 is incorrect.
explanation
The Sharpe ratio for commodities as an asset class has historically been lower than for both stocks and bonds. Historically, commodities have earned a lower return than stocks and bonds, and have had a higher standard deviation than stocks and bonds.
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