Question

9-Which of the following is true about risky assets relative to assets with relatively certain payouts?

A)For a given expected return, riskier assets have a higher standard deviation of possible returns.

B)For a given expected return, riskier assets have a lower standard deviation of possible returns.

C)Riskier assets always have lower expected returns relative to safer assets.

D)Riskier assets always have higher expected returns relative to safer assets.

Answer 1

Optiona A is true

standard deviation is used to measure market fluctuation or market volatility and hence it act as an indicator of risk .Risky asset's has a wide possible price range and has a greater fluctuation and volatility and therefore the possible return value has a wide range and certain payout assets do not deviate from its mean so its standard deviation is low whereas the standard deviation of riskier assets possible return is higher because it has a wider range of possible return.