Which one of the following statements is correct?
A)The risk premium on a risk-free security is generally considered to be 1 percent.
B)The expected rate of return on any security, given multiple states of the economy, must be positive.
C)There is an inverse relationship between the level of risk and the risk premium given a risky security.
D)If a risky security is correctly priced, its expected risk premium will be positive.
E)If a risky security is priced correctly, it will have an expected return equal to the risk-free rate.

Question

Quizplus · Accepted Answer

If a risky security is correctly priced, its expected risk premium will be positive, as it compensates investors for taking on additional risk compared to a risk-free security.

Which One of the Following Statements Is Correct