Because riskier assets offer ____ returns, a bank's strategy to increase its return will typically entail a(n) ____ in the overall credit risk of its asset portfolio.

Question

Quizplus · Accepted Answer

Riskier assets offer higher returns, but also come with higher credit risk. Therefore, to increase its return, a bank will typically increase its allocation to riskier assets, which will increase the overall credit risk of its asset portfolio. Therefore, the correct answer is (C) higher return and increase in overall credit risk.

Because Riskier Assets Offer ____ Returns, a Bank's Strategy to Increase