Asked by Mariah Rodriguez on Jul 11, 2024
Verified
Consider the following two investment alternatives: First, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5% rate of return with a probability of 60%. Second, a Treasury bill that pays 6%. The risk premium on the risky investment is ________.
A) 1%
B) 3%
C) 6%
D) 9%
Risk Premium
The extra return expected by investors for holding a risky asset over a risk-free asset, compensating them for the risk of loss.
Treasury Bill
Short-term government securities with maturity periods typically less than a year, considered to be risk-free investments.
- Evaluate and clarify the forecasted rate of return and the standard deviation associated with an investment.
Verified Answer
MM
Learning Objectives
- Evaluate and clarify the forecasted rate of return and the standard deviation associated with an investment.
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