Use the data table to answer the question that follows. Stock A Stock B Stock C 52W high; 52W low $87.54; $32.21 $9.68; $6.25 $37.11; $35.92 Div 0 $0.05 $0.75 P/E 36 20 7.9 Close $85.43 $6.98 $36.87 An investor's primary concern with adding a new stock to their portfolio is value for the price paid. Which stock should they choose and why? Stock B, because lower-priced stocks are more likely to be good deals in the financial market Stock B, because its P/E ratio means that it is earning more per share than its price Stock C, because its relatively lower P/E ratio indicates the others may be overvalued Stock C, because its relatively higher Div value means it is the best overall deal
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Use the data table to answer the question that follows.
|
Stock A |
Stock B |
Stock C |
|
|
52W high; 52W low |
$87.54; $32.21 |
$9.68; $6.25 |
$37.11; $35.92 |
|
Div |
0 |
$0.05 |
$0.75 |
|
P/E |
36 |
20 |
7.9 |
|
Close |
$85.43 |
$6.98 |
$36.87 |
An investor's primary concern with adding a new stock to their portfolio is value for the price paid. Which stock should they choose and why?
Stock B, because lower-priced stocks are more likely to be good deals in the financial market
Stock B, because its P/E ratio means that it is earning more per share than its price
Stock C, because its relatively lower P/E ratio indicates the others may be overvalued
Stock C, because its relatively higher Div value means it is the best overall deal
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