Stock a Is a Risky Asset That Has a Beta

question 46

Multiple Choice

Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent.Stock B is also a risky asset and has a beta of 1.25.The risk-free rate is 5.5 percent.Assuming both stocks are correctly priced,what is the expected return on stock B?

• A) 11.90 percent
• B) 12.11 percent
• C) 12.29 percent
• D) 12.38 percent
• E) 12.46 percent