If the Expected Return of Stock a Is 12 Percent

question 46

True/False

If the expected return of stock A is 12 percent and that of stock B is 14 percent, and both have the same variance, then nondiversified investors would prefer stock B to stock A.

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Definitions:

Revenues

Income generated from normal business operations, often from the sale of goods and services to customers.

Expenses

Costs incurred by a business or individual in the process of earning revenue, ranging from utilities to salaries.

Drawing Account

An account used to record withdrawals made by an owner from the business for personal use.

Owner's Capital Account

An equity account that represents the owner's invested capital plus any retained earnings or minus any withdrawals.