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Which one of the following statements is FALSE? A) When we compute the return of a security based on the average payoff we expect to receive, we call it the expected return
Which one of the following statements is FALSE?
A) When we compute the return of a security based on the average payoff we expect to receive, we call it the expected return.
B) The notion that investors prefer to have a safe income rather than a risky one of the same average amount is call risk aversion.
C) Because investors are risk averse, the risk-free interest rate is not the right rate to use when converting risky cash flows across time.
D) The more risk averse investors are, the higher the current price of a risky asset will be compared to a risk-free bond.
Expert Solution
Which one of the following statements is FALSE?
A) When we compute the return of a security based on the average payoff we expect to receive, we call it the expected return.
B) The notion that investors prefer to have a safe income rather than a risky one of the same average amount is call risk aversion.
C) Because investors are risk averse, the risk-free interest rate is not the right rate to use when converting risky cash flows across time.
D) The more risk averse investors are, the higher the current price of a risky asset will be compared to a risk-free bond.
Answer: D
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