If Stock a Is Considered to Be of Lower Risk

question 118

Multiple Choice

If Stock A is considered to be of lower risk than Stock B, then Stock A should have returns that are

• A)cannot determine from the information given
• B)higher than Stock B
• C)they would have equal returns
• D)lower than Stock B

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Definitions:

Earnings Before Interest And Taxes

A financial performance measure that calculates a company's profitability by excluding interest and taxes expenses.

Marginal Tax Rate

The rate of additional federal income tax to be paid on an additional dollar of income, which varies depending on income levels and filing status.

Taxable Income

The amount of an individual's or a company's income used to determine how much tax is owed to the government in a given tax year.

Average Tax Rate

The proportion of total income that is paid as tax, calculated by dividing the total tax paid by the total income.