You Are Comparing Stock a to Stock B

question 20

Multiple Choice

You are comparing Stock A to Stock B.Stock A will return 9 percent in a boom and 4 percent in a recession.Stock B will return 15 percent in a boom and lose 6 percent in a recession.The probability of a boom is 60 percent while the chance of a recession is 40 percent.Given this information,which one of these two stocks should you prefer and why?

• A)Stock A; because it has a higher expected return and appears to be more risky than Stock B
• B)Stock A; because it has a higher expected return and appears to be less risky than Stock B
• C)Stock A; because it has a slightly lower expected return but appears to be significantly less risky than Stock B
• D)Stock B; because it has a higher expected return and appears to be just slightly more risky than Stock A
• E)Stock B; because it has a higher expected return and appears to be less risky than Stock A

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Definitions:

Product-Cost Information

Data regarding the total costs incurred in the creation of a product, including direct materials, labor, and overhead expenses.

Optimal Product Mix

The combination of products that maximizes a company's profits or meets another financial metric, considering constraints like capacity and costs.

Production Capacity

The maximum amount of products or goods that can be produced within a given timeframe using available resources.

Variable Cost

Costs that vary directly with the level of production or service delivery.