You are comparing Stock A to Stock B.Stock A will return 9 percent in a boom and 4 percent in a recession.Stock B will return 15 percent in a boom and lose 6 percent in a recession.The probability of a boom is 60 percent while the chance of a recession is 40 percent.Given this information,which one of these two stocks should you prefer and why?
A)Stock A; because it has a higher expected return and appears to be more risky than Stock B
B)Stock A; because it has a higher expected return and appears to be less risky than Stock B
C)Stock A; because it has a slightly lower expected return but appears to be significantly less risky than Stock B
D)Stock B; because it has a higher expected return and appears to be just slightly more risky than Stock A
E)Stock B; because it has a higher expected return and appears to be less risky than Stock A

Question

Quizplus · Accepted Answer

The Answer of You are comparing Stock A to Stock B.Stock A will return 9 percent in a boom and 4 percent in a recession.Stock B will return 15 percent in a boom and lose 6 percent in a recession.The probability of a boom is 60 percent while the chance of a recession is 40 percent.Given this information,which one of these two stocks should you prefer and why?
A)Stock A; because it has a higher expected return and appears to be more risky than Stock B
B)Stock A; because it has a higher expected return and appears to be less risky than Stock B
C)Stock A; because it has a slightly lower expected return but appears to be significantly less risky than Stock B
D)Stock B; because it has a higher expected return and appears to be just slightly more risky than Stock A
E)Stock B; because it has a higher expected return and appears to be less risky than Stock A

You Are Comparing Stock a to Stock B