Question

1. Select the correct answer. a. Stand-alone risk is the risk an investor would face if...

1. Select the correct answer. a. Stand-alone risk is the risk an investor would face if he or she held portfolio of assets. b. Risk-averse investors like risk and require lower rate of return as an inducement to buy riskier securities. c. Risk premium is the difference between the expected rate of return on a given risky asset and that on a less risky asset. d. Capital Asset Pricing Model is based on the proposition that any stock’s required rate of return is equal to the risk-free rate of return minus a risk premium.

Homework Answers

Answer #1

Stand alone risk is risk an investor would face if held only single asset. Option a is incorrect

Risk premium is difference between market risk and risk free asset. So optiin c is also incorrect

CAPM is based on proposition that any stocks required rate of return is equal to risk free asset + beta*risk premium. So, option D is incorrect

So option B is correct risk averse investors like risk and require low rate of return as an inducement to buy riskier securities

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