Answer:
The returns of Stock A are 20% more sensitive to changes in the market than the returns of Stock B.
Explanation:
- We are given that the beta of Stock A is 1.2.
- The markets have a beta of 1.0. Since Stock B has a beta of 1, the beta of Stock B is equal to the market beta.
- In other words, it would move in sync with the market. Stock A's beta of 1.2 would mean that the stock has a higher beta implying the stock is 20% more volatile than the market.
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