Asked by Dequarious Henderson on Sep 24, 2024
Verified
In equilibrium,low risk assets earn a _______return than high risk assets
A) higher
B) lower
C) similar
D) none of the above
Low Risk Assets
Financial assets that are deemed to carry a low chance of losing value, typically offering lower potential returns.
High Risk Assets
Investments that offer the potential for higher returns but come with a greater possibility of loss.
Return
The process of bringing back a purchased product to the seller or store, often for a refund or exchange.
- Acquire knowledge on how investors balance risk and return attributes of assets in an equilibrium state.
Verified Answer
JH
Javier Herrera2 days ago
Final Answer :
B
Explanation :
In equilibrium, low risk assets earn a lower return than high-risk assets because investors are willing to accept lower returns for lower risk. This is known as the risk-return tradeoff. If low-risk assets offered higher returns than high-risk assets, investors would shift their investments towards the low-risk assets, driving up their prices and pushing down their returns until they were lower than the high-risk assets.
Learning Objectives
- Acquire knowledge on how investors balance risk and return attributes of assets in an equilibrium state.