Securities with the same expected risk should offer the same expected rate of return.

Question

Quizplus · Accepted Answer

This statement is based on the principle of efficient markets, which suggests that in a perfectly efficient market, two securities with identical risk profiles should offer the same expected return. This would allow investors to choose between securities solely based on their individual risk preferences. However, in reality, markets are not always perfectly efficient, and there may be temporary discrepancies between the expected return and risk of different securities.

Securities with the Same Expected Risk Should Offer the Same