Question

Which of the following lessons can be learned from studying the history of individual asset returns in the capital market?

a. Return and risk expectations can and will materialize over time if we wait long enough.

b. There are rewards, in terms of higher risk premiums, for holding risky assets.

c. Arithmetic and geometric average returns would be the same in an efficient financial market.

d. Unsystematic risk is the risk that is important to the average investor.

e. Excess returns on mutual funds cannot beat excess returns on index funds.

Answer 1

b. There are rewards, in terms of higher risk premiums, for

riskier assets have a higher risk premium compared to less risky ones