A pervasive tradeoff in financial markets relates risk to expected returns. Which of the following statements...

A pervasive tradeoff in financial markets relates risk to expected returns. Which of the following statements reflects this relationship best?

	A.	The higher the risk of an asset, the lower the expected return on the asset.
	B.	There is usually no relationship between risk and return.
	C.	The higher the risk of an asset, the higher the expected return on the asset.
	D.	The return on an asset is normally positively related to the risk of comparable assets.
	E.	None of the above correctly defines the relationship between risk and returns

Solutions

Expert Solution

C. The higher the risk of an asset, the higher the expected return on the asset.

(Greater is the risk on an asset, greater is the expected return on it. But there is no guarantee of it. So, actual returns may be different but expected returns are higher with higher risk.)

Rahul Sunny answered 1 year ago

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