Companies should deliberately increase their risk relative to the market only if the actions that increase the risk also increase the expected rate of return on the firm's assets by enough to completely compensate for the higher risk.

Question

Quizplus · Accepted Answer

This statement is related to the concept of the risk-return tradeoff, which states that higher returns can only be earned by taking on higher levels of risk. However, a company should only deliberately increase their risk if the expected rate of return on their assets also increases sufficiently to justify the higher risk. This principle is the basis for many investment strategies and is generally considered to be a sound approach to managing risk in a portfolio.

Companies Should Deliberately Increase Their Risk Relative to the Market