For any given financial asset, risk levels and average expected rates of return are
A)independent of each other.
B)negatively related because assets with higher average expected rates of return sell for higher prices, which are inversely related to risk.
C)positively related because both are inversely related to the rate of inflation.
D)positively related because investors must be compensated for taking greater risks.

Question

Quizplus · Accepted Answer

Investors require higher returns to compensate for taking on higher risk, leading to a positive relationship between risk levels and expected rates of return.

For Any Given Financial Asset, Risk Levels and Average Expected