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

Question

Quizplus · Accepted Answer

The difference between the required return and risk-free rate is commonly referred to as the risk premium. Stock A has a higher required return, and therefore a higher risk premium, indicating that it is riskier than stock B.

Stock a Has a Required Return of 19 Percent