As the risk of a stock investment increases,
A) return will increase.
B) required rate of return will increase.
C) return will decrease.
D) required rate of return will decrease.

Question

Quizplus · Accepted Answer

As the risk of a stock investment increases, investors will require a higher rate of return to compensate for the additional risk they are taking on. This means that the required rate of return will increase, not decrease, making answer choice D incorrect. Return on the investment may or may not increase or decrease with higher risk, depending on market conditions and other factors, so answer choices A and C are not necessarily correct.

As the Risk of a Stock Investment Increases