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Determining Risk, Return and Stock Valuation

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Given that you know the risk as well as the expected return for two stocks, discuss what process you might utilize to determine which of the two stocks is a better buy. You may assume that the two stocks will be the only assets held in your portfolio.

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Solution Summary

Determining whether to buy a stock is given.

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It is important to note that to determine whether a stock is worth buying is not an exact science. There are no guarantees. We generally look at the past performance of the firm, but there is no guarantee that performance will continue to resemble that f the past. We also look at the expected movements, but this is just a forecast, and forecast are predicted amounts that do not always come to past. However, we can learn a lot by looking at the fundamentals of the stock, and checking the underlying ...

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