Given the Following Two Stocks a and B If the Expected Market Rate of Return Is 0

question 46

Multiple Choice

Given the following two stocks A and B $$\begin{array} { l c c } \text { Security } & \text { Expected rate of return } & \text { Beta } \\\hline\text { A } & 0.12 & 1.2 \\\text { B } & 0.14 & 1.8\end{array}$$
If the expected market rate of return is 0.09 and the risk-free rate is 0.05,which security would be considered the better buy and why?

• A) A because it offers an expected excess return of 1.2%.
• B) B because it offers an expected excess return of 1.8%.
• C) A because it offers an expected excess return of 2.2%.
• D) B because it offers an expected return of 14%.
• E) B because it has a higher beta.

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