Answered

IDNLearn.com: Your one-stop destination for reliable answers to diverse questions. Our community is here to provide the comprehensive and accurate answers you need to make informed decisions.

Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of .6. Which of the following statements is most accurate?
a. The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.
b. The stock of Kaskin, Inc., has more total risk than Quinn, Inc.
c. The stock of Quinn, Inc., has more systematic risk than that of Kaskin, Inc.

Sagot :

Parrainidn

Answer: a. The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.

Explanation:

The beta of a stock measures its systematic risk which is its risk in relation to the market. With a higher systematic risk, there would be a higher expected return to compensate for this risk.

The beta is used to calculate the expected return in the CAPM formula:

Expected return = Risk free rate + Beta * Market premium

Note how the higher the beta, the higher the expected return based on the above formula.

We value your presence here. Keep sharing knowledge and helping others find the answers they need. This community is the perfect place to learn together. Your search for solutions ends at IDNLearn.com. Thank you for visiting, and we look forward to helping you again.