An investor is faced with the decision of whether to invest in a stock with an expected return of 14% or a stock in the same industry with an expected 20% return.Which of the following seems most likely?
A)the 20% stock is a better investment.
B)the 14% stock is overpriced.
C)Both stocks will have approximately the same return.
D)Both stocks are priced correctly given their perceived risk.

Question

Quizplus · Accepted Answer

The expected returns of the stocks likely reflect their perceived risk levels, meaning both could be priced correctly for their risk profiles.

An Investor Is Faced with the Decision of Whether to Invest