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- The longer the time horizon to an investment's maturity, the ________ the expected risk and the _________ the expected risk premium. lower; lower higher; lower lower; higher higher; higherThe ---------------- the expected return, the ----------------- the risk. a. higher; higher b. lower; higher c. more stable; higher d. higher,lowerWhich of the following statements is true for compensation of risk? a. Higher the risk, lower is the return b. Lower the risk, higher is the return c. Higher the risk, higher is the return d. Higher the risk, zero is the return
- QUESTION 2 For which type of risk do you get rewarded with a higher expected return? a. Firm-specific risk Ob. Total risk C. Diversifiable risk d. Unknown е. Systematic riskSupposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returns
- On the basis of the utility formula below, which investment would you select if you were risk averse with A = 4? Investment Expected return E(r) Standard deviation σ 1 0.12 0.30 2 0.15 0.50 3 0.21 0.16 4 0.24 0.21The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk. Multiple Choice lower; lower lower; higher higher; lower higher; higherIf an investor prefers investment with higher risk, regardless to the return then he is following a strategy. O a. risk-aware O b. risk-averse C. risk-seeking O d. risk-neutral
- Which one of the following statements is correct? Multiple Choice The risk-free rate of return has a risk premium of 1.0. The reward for bearing risk is called the standard deviation. Risks and expected return are inversely related. The higher the expected rate of return, the wider the distribution of returns. Risk premiums are inversely related to the standard deviation of returns.The desired rate of return on an investment should reflect the degree of risk involved. A. True B. FalseAccording to our textbook, risk is a: C. Unexpected loss D. All of the above B. Expected loss A. Trade-off with return