Question

Stock A has a required return of 19%. Stock B has a required return of 11%. Assume a risk-free rate of 4.75%. Which of the following is a correct statement about the two stocks. Stock A is riskier. Stock B is riskier. The stocks have the same risk. We would need to know if the markets are efficient to answer this question.

Answer 1

Stock A is riskier.

Step-by-step explanation:

Answer : Stock A is riskier because Risk premium of Stock A i.e. 19% - 4.75%= 14.25% is greator than Risk premium of Stock B i.e. 11% - 4.75% = 6.25%.