Question

In: Finance

Which one of the following statements is correct? a. A risky asset will always earn a...

Which one of the following statements is correct?
a. A risky asset will always earn a greater annual rate of return than a riskless asset.
b. U.S. Treasury bills have a risk premium equal to one percent .
c. Largecompany stocks have historically been more risky than small-company stocks .
d. The mean is a measure of volatility .
e. There is a direct relationship between risk and return .

Solutions

Expert Solution

The correct answer is e due to the efficient market theory, which says there is a direct relationship between risk and return.

a. The statement is not correct as in some cases the greater risk may cause the return to be negative as well

b. US T-bills are of different time maturities and the premium for time changes as the time to maturity increases hence 1% risk premium is incorrect

c. On the contrary to the statement, small companies stock have been more riskier than large company stocks due to more variance in their stock values

d. The standard devaition is the measure of volatility

jeff jeffy answered 2 years ago
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