Question

Which of the following statements is true? A) Assets with lower levels of market risk will sell for higher prices. B) Assets with lower levels of market risk will have higher expected rates of return. C) Assets with higher levels of market risk will sell for higher prices. D) Assets with higher levels of market risk will have lower expected rates of return.

Answer 1

Answer:

C) Assets with higher levels of market risk will sell for higher prices.

Explanation:

The Capital Asset Pricing Model (CAPM) is a term that explains the connection between systematic risk and expected return for assets, specifically on stocks.

Thus, investors expect to be repaid for risk and the time value of money they put in. This is depicted with the formula = ERi = Rf + Bi (ERm - Rf)

Where ERi = expected return of investment

Ri = Risk-free rate

Bi = Beta of the investment

ERm - Rf = market risk premium

Hence, it is assumed that, Assets with higher levels of market risk will sell for higher prices.