How does the fact that asset prices and expected rates of return are inversely related cause asset risk and expected rates of return to be positively related?
What will be an ideal response?
Asset prices and expected rates of return are inversely related because the higher the price of an asset, the less return an investor is likely to earn on that investment. This relationship causes asset risk and expected return to be positively related because the riskier an asset is, the lower its price will be. Following the relationship of prices and expected rates of return, the lower the price, the higher the rate of return. Thus, high risk results in high expected return and vice versa.
You might also like to view...
In the above figure, moving from producing 50 guitars and 50 ukuleles to producing 25 guitars and 75 ukuleles, the opportunity cost of one ukulele is
A) 25 guitars. B) 75 ukuleles. C) 25 ukuleles. D) 1 guitar.
The poorer a country is the:
A. more difficult it is to pay for things that will bring it out of poverty. B. less they have to give up for the basic things that will bring them out of poverty. C. easier it is to pay for things that will bring it out of poverty. D. more they can invest in all the components of productivity at once.
In a monopolistically competitive market: a. there are significant barriers to the entry of new sellers. b. firms sell differentiated products
c. firms face horizontal demand curves. d. there are a few producers selling standardized products.
Banks create money by keeping a small percentage of deposits in reserves and __________ the remaining funds, charging interest.
a. lending b. spending c. saving d. investing