Stock A has more systematic risk than stock B, stock B has more unsystematic risk than stock A, and it is unclear which stock (A or B) has more total risk. Both stock A and stock B have more systematic risk than the market.
1. Which of the following assertions is most consistent with finance theory regarding risk and diversification?
A. Stock A would have a higher expected return than stock B and stock Awould have a higher expected return than the market
B. Stock A would have a higher expected return than stock B and stock A would have a lower expected return than the market
C. Stock A would have a lower expected return than stock B and stock A would have a higher expected return than the market
D. Stock A would have a lower expected return than stock B and stock A would have a lower expected return than the market
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