Consider the Assets Outlined in the Table Above

question 25

Multiple Choice

$$\begin{array} { | c | c | c | } \hline \text { Asset } & \begin{array} { c } \text { Expected } \\\text { Return }\end{array} & \text { Beta } \\\hline \text { Stock A } & 9 \% & 0.9 \\\hline \text { Stock B } & 11 \% & 1.4 \\\hline \text { Risk-Free Asset } & 5 \% & \\\hline\end{array}$$ Consider the assets outlined in the table above. Which asset offers the best risk-return trade-off?

• A)Stock A
• B)Stock B
• C)The risk-free asset
• D)Either Stock A or Stock B as both have the same risk-return trade-off

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Definitions:

After-Tax Discount

A reduction in the price of an item or service that is applied after calculating taxes.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life uniformly.

After-Tax Discount

The reduction or deduction from the gross amount on which tax has already been calculated and deducted.

Working Capital

The gap between a firm's current assets and its current liabilities, signifying the available liquidity for operating its business activities.