Asked by Paris Smith on Apr 24, 2024
Which of the following is a true statement?
A) To calculate the expected risk premium one needs the expected return on the risky asset and the return on a risk-free asset.
B) The risk premium is the difference between the return on a risky asset and the return on the market portfolio.
C) The expected return on an asset is equal to the sum of the possible returns divided by their probabilities.
D) Comparison of two different risky assets cannot be simplified by calculating the expected return for each.
E) Expected returns depend on the states of the economy but not the associated probabilities.
Risk Premium
The additional return expected by an investor for taking on a higher level of risk, compared to a risk-free investment.
Risky Asset
An investment that holds a significant chance of losing all or part of its value.
Risk-free Asset
An investment option that ensures a definite return and carries no risk of losing money.
- Understand the concepts and calculations associated with critical investment indicators, including beta, standard deviation, risk premium, and expected returns.
- Compute and elucidate the anticipated return on assets and investment portfolios across diverse economic conditions.
Learning Objectives
- Understand the concepts and calculations associated with critical investment indicators, including beta, standard deviation, risk premium, and expected returns.
- Compute and elucidate the anticipated return on assets and investment portfolios across diverse economic conditions.
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