Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. has the higher arithmetic average return.

Both the stock have the same expected return.

Step-by-step explanation:

In year 1 the return earned by stocks A and B are:

Stock A = 2% return

Stock B = 9% return

In year 2 the return earned by stocks A and B are:

Stock A = 18% return

Stock B = 11% return

Compute the expected return for stock A as follows:

Compute the expected return for stock B as follows:

Thus, both the stock have the same expected return.

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a

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