Which of the following statements are true? (1) Risk-averse investors require a premium over the risk-free...

Which of the following statements are true?

(1) Risk-averse investors require a premium over the risk-free rate for holding a risky asset.

(2) Risk-loving investors prefer risk-free investments

(3) Risk-neutral investors will accept a fair game

(4) Risk-averse investors always prefer bonds over stocks.

1, 2, 3, and 4

2 and 4

1 and 3

1 and 2

Solutions

Expert Solution

Answer: Options 1 and 3 are true.
Option 1: It is true that the risk-averse investors consider a risky investment if they get an appropriate risk premium in the investment.
Option 2: This statement is not true. Risk-loving investors will prefer risky investments.
Option 3: This statement is true.
Option 4: This statement is not true. Risk averse investors do not always prefer bonds over stocks. Risk-averse investors consider a risky investment if they get an appropriate risk premium in the investment.

jeff jeffy answered 1 year ago

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