Consider the Following Two Stocks,A and B

question 54

Multiple Choice

Consider the following two stocks,A and B.Stock A has an expected return of 10% and a beta of 1.20.Stock B has an expected return of 14% and a beta of 1.80.The expected market rate of return is 9% and the risk-free rate is 5%.Security __________ would be considered a good buy because _________.

• A) A, it offers an expected excess return of 0.2%
• B) A, it offers an expected excess return of 2.2%
• C) B, it offers an expected excess return of 1.8%
• D) B, it offers an expected return of 2.4%

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Definitions:

Autarky Price

The price of a good in a country when it is closed to international trade, reflecting the balance of domestic supply and demand.

International Trade

The exchange of goods, services, and capital between countries or territories.

Domestic Market

The domestic market refers to the economic activities and transactions happening within a country's borders, focusing on the buying and selling of goods and services locally.

Consumer Surplus

The gap between what consumers are prepared and can afford to pay for a product or service versus what they end up paying.