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Question
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2. Stock B has an expected return of 14% and a beta of 1.8. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered the better buy because _________.
A. A; it offers an expected excess return of .2%
B. A; it offers an expected excess return of 2.2%
C. B; it offers an expected excess return of 1.8%
D. B; it offers an expected return of 2.4%
Answer
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Related questions
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Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?
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Q:
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Q:
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Q:
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Q:
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Q:
You manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume the risk-free rate is 2% per quarter and the current value of the S&P 500 Index is 1,200. You want to exploit the positive alpha, but you are afraid that the stock market may fall and you want to hedge your portfolio by selling 3-month S&P 500 future contracts. The S&P contract multiplier is $250.
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D. The answer cannot be determined from the information given.