The higher the risk of an investment, the lower the required rate of return by investors.
The higher the risk, the higher the consequent required rate of return.

Question

Quizplus · Accepted Answer

The statement is incorrect. According to the principles of finance, the higher the risk associated with an investment, the higher the expected return that investors require as compensation for taking on that risk. This is because investors want to be adequately compensated for the additional risk they are taking on. Therefore, the required rate of return increases with the level of risk.

The Higher the Risk of an Investment, the Lower the Required