Question

Would you ever invest in a risky security having an expected return less than the riskless rate? Explain.

Answer 1

Solution :-

No , we would never invest in a risky security having an expected return less than the riskless rate . As in case of risk free asset there is a fixed return in which there is no chances of loss . So if we get a return with out a risk and why we can take risk for return which is less than risk free return .

There is a positive relation ship between risk and return , If a person wants high return then he need to take high risk and if a person does not want to take risk then he gets low return . So a person has never invest in a risky security having an expected return less than the riskless rate as if he takes risk he wants more return

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