If the Expected Return of Stock a Is 12% and That

question 33

True/False

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

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Definitions:

Financial Structure Leverage

The use of various financial instruments or borrowed capital, like debt, to increase the potential return of an investment.

Long-term Debt

Loans or financial obligations that are due for repayment beyond the next 12 months or the current business cycle.

Finance Assets

Financial assets specifically purchased, created, or held for the purpose of generating income through investment or lending activities.

Financial Leverage

The use of borrowed funds with a fixed cost in order to increase the potential return to shareholders.