Question: Stock X has a high beta and a high expected return. Stock Y has a low beta and a low expected return. If the market

Stock X has a high beta and a high expected return. Stock Y has a low beta and a low expected return. If the market is efficient and if CAPM holds, which stock would a well-diversified investor prefer to buy?

Stock X.

Stock Y.

C.	She is indifferent.

D.	It depends on the price of each stock.

E.	It depends on her risk tolerance.

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