Question

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to _____. A. pay less for the security that has higher risk. B. earn more if interest rates are lower. C. pay less for the security that has lower risk. D. earn no more than the Treasury-bill rate on either security.

Answer 1

Answer:

Option A (Payless for the security that has a higher risk) is the correct option.

Explanation:

• Although if he investments in some kind of a risk-free portfolio, he receives the dividends across both investments from the federal funds rate. And also that the risk and from both shares is similar so it would be clear the gain would be significant.  Since all the protection factors would be similar as shareholders would pay less that seems to have an increased chance. Because the probability is greater the benefit should be higher.
• When the market groups are likely but perhaps the hazard across both investments is higher such that the profit should be greater across both situations.  
• There seems to be no definition suggesting that maybe you should charge very little for the risk coverage. Because the reduced protection of risk yields less return, instead of just spending less, it is appropriate to pay an additional sum.

The other given choices are not related to the given circumstances. So that Option A seems to be the appropriate one.

Answer 2

According to the question Option, A is (Payless for the protection that incorporates a higher risk) is the correct option. Although if he investments in quite a risk-free portfolio, he receives the dividends across both investments from the federal funds rate.

Who is Investor?

The risk from both shares is analogous so it'd be clear the gain would be significant. Since all the protection factors would be similar as shareholders would pay less that seems to possess an increased chance. Because the probability is bigger the benefit should be higher.

When the market groups are likely but perhaps the hazard across both investments is higher specified the profit should be greater across both situations.

There seems to be no definition suggesting that perhaps you ought to charge little or no for the danger coverage. Because the reduced protection of risk yields less return, rather than just spending less, it's appropriate to pay a further sum.

The other given choices don't seem to be associated with the given circumstances. so Option A seems to be the suitable one.

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