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    expected excess return

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    Consider the following two stocks, A and B. Stock A has an expected rate of return 10% and beta 1,20. Stock B has an expected rate of return 14% and beta 1,80. The expected market rate of return is 9% and the risk free rate is 5%. Security______would be a good buy because________

    1. A, It offers an expected excess return of 0.2%
    2. A, It offers an expected excess return of 2.2%
    3. B, it offers an expected excess return of 1.8%
    4. B, it offers an expected return of 2,4%
    5. B, it offers an abnormal return of 1,2%

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    https://brainmass.com/economics/finance/expected-excess-return-354651

    Solution Preview

    Required rate of return Re=Rf+Beta*(Rm-Rf)
    Rf=5% Rm=9%
    For stock A, ...

    Solution Summary

    This solution analyzes expected excess return.

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