You are certain that the restaurant industry's normal rate of return is 12%. You would expect a(n) ________ normal rate of return for a soft drink manufacturing industry that people consider much less risky than the restaurant industry.
A) 12%
B) less than 12%
C) above 12%
D) risk free (the rate on government bonds)

Question

Quizplus · Accepted Answer

The soft drink manufacturing industry is considered less risky than the restaurant industry. Generally, lower risk investments offer lower potential returns. Therefore, if the restaurant industry's normal rate of return is 12%, a less risky industry like soft drink manufacturing would likely offer a rate of return less than 12%.

You Are Certain That the Restaurant Industry's Normal Rate of Return