Stock A has a required return of 12 percent. Stock B has a required return of 15 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

Stock B is riskier because it has a higher required return. In finance, a higher required return typically indicates higher risk, as investors demand more compensation for taking on additional risk. The risk-free rate is the same for both stocks, so the difference in required return reflects a difference in risk.

Stock a Has a Required Return of 12 Percent