Asked by Jared Myers on Jul 14, 2024
Verified
If the market is efficient and securities are priced fairly then the _____ will be constant for all securities.
A) Systematic risk.
B) Standard deviation.
C) Reward-to-risk ratio.
D) Beta.
E) Risk premium.
Reward-To-Risk Ratio
An assessment tool employed by investors to evaluate the potential returns of an investment relative to the level of risk involved in achieving those returns.
Market Efficiency
describes a market in which asset prices fully reflect all available information at any given time, making it impossible to consistently achieve higher returns.
- Outline the essentials of the Capital Asset Pricing Model (CAPM), with a special emphasis on understanding beta and the risk premium.
Verified Answer
AA
Ashley AguilarJul 21, 2024
Final Answer :
C
Explanation :
In an efficient market, where securities are priced fairly, the reward-to-risk ratio should be constant across all securities. This is because the prices of securities adjust to reflect all available information, meaning that investors should expect to receive a level of return that is commensurate with the level of risk they are taking on. Other measures like systematic risk, standard deviation, beta, and risk premium can vary between securities based on their individual characteristics and market conditions.
Learning Objectives
- Outline the essentials of the Capital Asset Pricing Model (CAPM), with a special emphasis on understanding beta and the risk premium.