You are comparing stock A to stock B. Given the following information, which one

Question

You are comparing stock A to stock B. Given the following information, which one of these two

                  Stocks should you prefer and why?

Rate of Return if State Occurs

State of the Economy

Probability of State of the Economy

Stock A

Stock B

Boom

55%

13%

8%

Recession

45%

-5%

3%

a.              

Stock A; because it has a higher expected return and appears to be less risky than stock B.

b.

Stock A; because it has a lower expected return but appears to be less risky than stock B.

c.

Stock B; because it has a higher expected return and appears to be more risky than stock A.

d.

Stock B; because it has a higher expected return and appears to be less risky than stock A.

Rate of Return if State Occurs

State of the Economy

Probability of State of the Economy

Stock A

Stock B

Boom

55%

13%

8%

Recession

45%

-5%

3%

Explanation / Answer

Therefore, the correct answer is option A. Stock A; because it has a higher expected return and appears to be less risky than stock B.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.