Question

You are evaluating two possible stock investments, Buyme Co. and Getit Corp. Buyme Co. has an expected return of 12.2% and a beta of 0.96. Getit Corp. has an expected return of 12.2% and a beta of 1.29. Based only on this data, which stock should you buy and why?

Answer 1

When evaluating stock investments, it is important to consider both the expected return and the beta.

Step-by-step explanation:

When evaluating stock investments, it is important to consider both the expected return and the beta.

The expected return represents the average return that an investment is expected to generate.

The beta measures the sensitivity of the stock's returns to the overall market returns. A beta greater than 1 indicates that the stock is more volatile compared to the overall market, while a beta less than 1 indicates that the stock is less volatile.

In this case, Buyme Co. has a lower beta of 0.96 compared to Getit Corp.'s beta of 1.29. This means that Buyme Co. is expected to be less volatile than Getit Corp. However, both stocks have the same expected return of 12.2%.

Based on this information, if you prefer a lower risk investment, you should buy Buyme Co. since it has a lower beta and is expected to be less volatile. If you are comfortable with a higher risk investment, you can choose Getit Corp.