Which of the following statements is more likely to be correct concerning the statement, "Stock A has a higher expected return than Stock B"?
A)Stock A has more unique risk.
B)Stock B plots below the security market line.
C)Stock B is a cyclical stock.
D)Stock A has a higher Beta.

Question

Quizplus · Accepted Answer

Stock Beta measures the systematic risk of a security. A higher beta means that the security is more volatile than the market. Since Stock A has a higher expected return, it is reasonable to conclude that it has a higher level of systematic risk as well. Thus, D is the most likely statement to be correct. The other statements are not directly related to expected return.

Which of the Following Statements Is More Likely to Be