When comparing T-bills and stocks,a risk-averse investor may choose to invest in T-bills although stocks give higher average returns because _____.
A)investing in stocks involves a long term commitment
B)investing in stocks involves a higher degree of risk
C)stocks are less liquid than T-bills
D)stocks cannot be bought and sold in a secondary market

Question

Quizplus · Accepted Answer

A risk-averse investor is less willing to take on higher levels of risk, even if it means potentially higher returns. Stocks are generally considered riskier investments compared to T-bills, which are backed by the U.S. government and considered very safe. Therefore, the investor may choose T-bills over stocks even if the average returns on stocks are higher.

When Comparing T-Bills and Stocks,a Risk-Averse Investor May Choose to Invest