When considering the risk of receiving cash flows, financial managers must be aware that investors _____.
A) want higher returns for perceived greater risk
B) want a lower valued firm to discourage future investors which might dilute their existing control
C) expect dividends and capital gains regardless of the risks associated with achieving them
D) always want lower returns so that the risk is minimized

Question

Quizplus · Accepted Answer

When considering risk, investors typically expect higher returns for perceived greater risk. This is known as the risk-return tradeoff in finance. Investors are generally willing to take on more risk if they believe they will be compensated with higher returns.

When Considering the Risk of Receiving Cash Flows, Financial Managers