As the risk of a stock investment increases, investors' ________.

Question

Quizplus · Accepted Answer

As the risk of a stock investment increases, investors will require a higher rate of return to compensate for the higher risk. Therefore, the required rate of return will increase. This is represented by the capital asset pricing model (CAPM), which states that the required rate of return is equal to the risk-free rate plus the equity risk premium, multiplied by the stock's beta coefficient (which measures its volatility relative to the market).

As the Risk of a Stock Investment Increases, Investors' ________