In a competitive market,investments with ________ risk should have ________ expected return.

Question

Quizplus · Accepted Answer

In a competitive market, investments with similar risk should have the same expected return. This is based on the principles of the Capital Asset Pricing Model (CAPM), which assumes that investors are rational and price assets based on their expected returns and risks. Therefore, if two investments have similar risks, investors would demand the same expected return for both of them in order to compensate for the risks they are taking. If one investment had a higher expected return than another with similar risk, investors would flock to the higher return investment, driving up its price and lowering its expected return. This would result in the two investments having similar expected returns in the long run.

In a Competitive Market,investments with ________ Risk Should Have ________

In a Competitive Market,investments with Risk Should Have