Which one of the following statements is false?
A) When we compute the return of a security based on the average payoff we expect to receive, we call it the expected return.
B) The notion that investors prefer to have a safe income rather than a risky one of the same average amount is call risk aversion.
C) Because investors are risk averse, the risk-free interest rate is not the right rate to use when converting risky cash flows across time.
D) The more risk averse investors are, the higher the current price of a risky asset will be compared to a risk-free bond.

Question

Quizplus · Accepted Answer

The statement D is false because, in general, the more risk-averse investors are, the lower the price they are willing to pay for a risky asset compared to a risk-free bond. This is because risk-averse investors require a higher expected return (risk premium) to compensate for the additional risk, which typically leads to a lower current price for the risky asset relative to a risk-free bond.

Which One of the Following Statements Is False