Stocks A, B and C have the same risks. Stock A earns an annual return of 12% and Stock B and C earn returns of 11%. Stock A
A) Is overpriced
B) Is efficiently priced
C) Must be a smaller company stock
D) Has a positive excess return
E) Must be owned primarily by pessimistic investors

Question

Quizplus · Accepted Answer

Stock A has a higher return than Stocks B and C, indicating a positive excess return. This could be due to various reasons, such as better management or growth prospects. Therefore, it is not overpriced but is efficiently priced with a positive excess return. The size or ownership of the stock cannot be determined with the given information, and the optimism or pessimism of the investors cannot be inferred.

Stocks A, B and C Have the Same Risks