Asked by
Gaurang Sharma
on Nov 03, 2024
Verified
The risk premium on the market portfolio will be proportional to
A) the average degree of risk aversion of the investor population.
B) the risk of the market portfolio as measured by its variance.
C) the risk of the market portfolio as measured by its beta.
D) the average degree of risk aversion of the investor population and the risk of the market portfolio as measured by its variance.
E) the average degree of risk aversion of the investor population and the risk of the market portfolio as measured by its beta.
Risk Premium
An expected return in excess of that on risk-free securities. The premium provides compensation for the risk of an investment.
Market Portfolio
An investment portfolio that theoretically includes all assets in the market, with each asset weighted according to its market capitalization.
- Analyze the impact of risk aversion on investment decisions.
- Absorb the principal nexus between beta and expected return as an integral aspect of the Capital Asset Pricing Model.
Verified Answer
FP
Learning Objectives
- Analyze the impact of risk aversion on investment decisions.
- Absorb the principal nexus between beta and expected return as an integral aspect of the Capital Asset Pricing Model.