Question: Select the best answer. Stock C has a required rate of return (r s ) of 14%, an expected return (^r ) of 15% and

Select the best answer. Stock C has a required rate of return (r_s) of 14%, an expected return (^r ) of 15% and a beta of 1.5. Stock D has a required rate of return (r_s) of 12%, an expected return (^r ) of 11%.and a beta of .95 You plan to add either Stock C or Stock D to an existing portfolio.

a. You would select Stock C because it has the highest expected return (^r ), therefore the highest potential reward.

b. You select Stock C because its expected return (^r ) is higher than its required return (rs), therefore has the most attractive risk/reward profile.

c. You would select Stock D because it has the lowest expected return (^r ), therefore has the least potential loss.

d. You would select Stock D because its expected return (^r ) is lower than its required return (rs), therefore has the most attractive risk/reward ratio.

e. You would select neither stock because each has a beta that is equal or less than its expected return (^r ).

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