You are comparing stock A to stock B. Given the following information, what is the difference in the expected returns of these two securities?
A)-0.85 percent
B)1.95 percent
C)2.05 percent
D)13.45 percent
E)13.55 percent

Question

You are comparing stock A to stock B. Given the following information, what is the difference in the expected returns of these two securities? 
A)-0.85 percent 
B)1.95 percent 
C)2.05 percent 
D)13.45 percent 
E)13.55 percent

Quizplus · Accepted Answer

E(r)_A = (0.45F1F1F1S1F1F1F10 0.14) + (0.55 F1F1F1S1F1F1F10 -0.22) = -5.80 percentE(r)_B = (0.45 F1F1F1S1F1F1F10 0.17) + (0.55 F1F1F1S1F1F1F10 -0.28) = -7.75 percentDifference = -5.80 percent - (-7.75 percent) = 1.95 percent

You Are Comparing Stock a to Stock B