Stock a Has a Required Return of 12 Percent

question 17

Multiple Choice

Stock A has a required return of 12 percent. Stock B has a required return of 15 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.

---

Definitions:

Process Costing

A costing method used where identical or similar items are produced in masses.

FIFO Method

An inventory valuation method where the first items produced or purchased are the first ones to be sold.

Equivalent Units

A concept in cost accounting used to calculate the cost of partially finished goods, converting them into an equivalent number of fully finished units.

FIFO Method

A inventory valuation method where the first items produced or acquired are sold or used first.