Stock a Has a Required Return of 19 Percent

question 103

Multiple Choice

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

• A) Stock A is riskier.
• B) Stock B is riskier.
• C) The stocks have the same risk.
• D) We would need to know if the markets are efficient to answer this question.

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Definitions:

Saint-John's-Wort

A herbal plant traditionally used in the treatment of mild to moderate depression, though its efficacy and safety are subjects of ongoing research.

Depression

A mental health disorder marked by persistent feelings of sadness, hopelessness, and a lack of interest or pleasure in activities.

Biochemistry

The branch of science concerned with the chemical processes and substances that occur within living organisms.

Nervous System

The part of an organism that gathers, processes, and responds to sensory information, consisting of the brain, spinal cord, and peripheral nerves.