You Are Comparing Share a to Share B A)Share A; Because It Has an Expected Return of 7

question 102

Multiple Choice

You are comparing share A to share B. Given the following information, which one of these two shares should you prefer and why?
$\begin{array} { | l | l | l | l | } \hline & & \multicolumn{2}{|l|} { \text { Rate of Return if State Occurs } } \\\hline \text { State of Economy } & \text { Probability of State of Economy } & \text { Share A } & \text { Share B } \\\hline \text { Boom } & 60 \% & 9 \% & 15 \% \\\hline \text { Recession } & 40 \% & 4 \% & 6 \% \\\hline\end{array}$

• A)Share A; because it has an expected return of 7% and appears to be more risky.
• B)Share A; because it has a higher expected return and appears to be less risky than share B.
• C)Share A; because it has a slightly lower expected return but appears to be significantly
• Less risky than share B.
• D)Share B; because it has a higher expected return and appears to be just slightly more risky
• Than share A.
• E)Share B; because it has a higher expected return and appears to be less risky than share A.

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Definitions:

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The shared belief in a group's capabilities to organize and execute the actions required to achieve certain goals.

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