Laura Is Considering Two Investments: Stock a and B

question 119

Multiple Choice

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

• A) Stock B is better because it is considered to be cheaper than Stock A.
• B) Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.
• C) Since the P/E ratios are the same, Laura would be indifferent between the two stocks.
• D) None of these choices are correct.

Comprehend the effects of interest rate changes on reinvestment rate risk and price risk balancing.

Grasp the concept of bond valuation changes with yield movements.

Understand the role and calculation of a bond's yield to maturity in investment decision-making.

Learn the strategies for maximizing capital gains through bond investment in anticipation of interest rate movements.

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