If Stock A has a higher expected return than Stock B,which of the following statements is most likely?
A) Stock A has more specific 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 A having a higher expected return indicates that it has a higher level of systematic risk or market risk. Beta measures the systematic risk of a stock and indicates how much a stock's return will move in relation to overall market movements. Therefore, Stock A having a higher expected return is most likely associated with a higher beta.

If Stock a Has a Higher Expected Return Than Stock