You have been scouring The Wall Street Journal looking for stocks to add to your (large) portfolio. The table presents data that you have collected on four stocks that look promising.
You have calculated the return that you anticipate earning from each stock along with its beta. Which of the four securities should you add to your portfolio? (Assume you must choose just one.) Assume the risk-free rate is 7.00 and the market risk premium is 2.00.
Stock Anticipated Return Beta
A 9.01 1.70
B 7.06 0.00
C 8.74 0.87
D 11.50 2.50
A) Stock A
B) Stock B
C) Stock C
D) Stock D
Question 2
The price/earnings ratio:
A) Is calculated by multiplying the market price of a stock by its earnings per share.
B) Is found by dividing the market price of a stock by the firm's total earnings.
C) Is computed by dividing the book value of a stock by the firm's EPS.
D) Is calculated by adding the market price of a stock to the firm's EPS.
E) Is found by dividing the market price of a stock by the firm's EPS.
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