If the variability of the returns on large-company stocks were to increase over the long-term,you would expect which of the following to occur as a result?
I.decrease in the average rate of return
II.increase in the risk premium
III.increase in the 68 percent probability range of the frequency distribution of returns
IV.decrease in the standard deviation

Question

Quizplus · Accepted Answer

If the variability of the returns on large-company stocks were to increase over the long-term, it implies that the risk associated with such investments has increased. This would lead to an increase in the risk premium demanded by investors, as indicated in option II. Option III is also correct, as an increase in variability would mean that the distribution of returns would become wider, resulting in a broader 68 percent probability range. However, option I is incorrect, as an increase in variability does not necessarily lead to a decrease in the average rate of return. Finally, option IV is also incorrect, as an increase in variability would lead to an increase in standard deviation, not a decrease.

If the Variability of the Returns on Large-Company Stocks Were