Consider the following two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.20. Stock B has an expected return of 14% and a beta of 1.80. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered a good buy because __________.
a. A, it offers an expected excess return of 0.8%
b. A, it offers an expected excess return of 2.2%
C. B, it offers an expected excess return of 1.8%
d. B, it offers an expected return of 2.4%
Answer: C. B, it offers an expected excess return of 1.8%