Which of the following statements best describes the relationship between asset prices and average expected returns?
A) More risky assets will have similar prices to less risky assets.
B) Less risky assets will have lower prices than more risky assets.
C) Less risky assets will have higher prices than more risky assets.
D) More risky assets will have higher prices than less risky assets.

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), assets with higher levels of risk should have higher expected returns to compensate investors for taking on more risk. Therefore, less risky assets will have higher prices than more risky assets since investors are willing to pay more for assets that offer lower risk and higher expected returns.

Which of the Following Statements Best Describes the Relationship Between