If Stock A has a lower expected return than Stock B, which of the following statements is least likely?Stock A has more specific risk.Stock B plots below the security market line.Stock A has a higher beta.Stock B is a cyclical stock.

Answered: If Stock A has a lower expected return…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 12P: Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average...

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If Stock A has a lower expected return than Stock B, which of the following statements is least likely?
Stock A has more specific risk.
Stock B plots below the security market line.
Stock A has a higher beta.
Stock B is a cyclical stock.

Expert Solution

Step 1

Beta is a measure of systematic risk for the company or security. It is the risk measure to show to volatility/sensitivity of the stock with the market movement. When the beta is more than 1 it means that the stock has more systematic risk than the market and when it is less than 1 it means that the stock has less systematic risk as compared to the market.

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