Stock A and stock B are both priced at RM50 per share. Stock A has a PE ratio of 17, while Stock B has a PE ratio of 24. Which is the more attractive investment, considering everything else to be the same, and why?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Stock A and stock B are both priced at RM50 per share. Stock A has a PE ratio of 17, while Stock B has a PE ratio of 24. Which is the more attractive investment, considering everything else to be the same, and why?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
