Question

Beth and John are your new planning clients. In discussing investment planning with them you want to ensure that you explain the concept of risk and return. Which of the following statements would you not want to tell them?

In efficient markets you need to be willing to take higher potential risk for higher potential return.

Modern portfolio theory suggests that investors are rewarded in terms of the risk-return trade-off for holding a diversified portfolio of securities across a variety of asset classes.

There is no risk in investing all your assets into the risk-free Treasury bill.

Investors that are willing to hold an asset riskier than the risk-free security should be entitled to a market premium.

Answer 1

I will be telling him that efficient markets are always discounting the publicly available information and privately available information in the stock prices so there is no chance of making any excess rate of return in Efficient market so I will not be asking him to take any risk because they will be also not helping him to make any rate of return Efficient market as Efficient market are truly reflective of values of stockband there is no chance of making any excess rate of return.

Other given statements are true.

Correct answer will be option(A) in efficient markets you need to be willing to take higher potential risk for higher potential return.