Question

which of the following is not correct about risk and return?

A. riskier assets will, on average, earn higher returns

B. on average, the higher the expected return the higher the risk

C. an increase in the risk of an investment will result in a an increased risk premium

D. the reward for bearing risk is lower expected return

E. based on historical data, there is a reward in higher returns for bearing risk

Answer 1

Option D is not correct the reward for bearing risk is higher expected return, not lower expected return. So, option E is incorrect.

Option A is incorrect because riskier assets will, on average, earn higher returns. This is a correct statement

Option B is incorrect because on average, the higher the expected return the higher the risk. This is a correct statement

Option C is incorrect because an increase in the risk of an investment will result in a an increased risk premium. This is a correct statement

The risk and expected return go in opposite direction

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