In a multifactor model, confidence risk represents
A) unanticipated changes in the level of overall business activity.
B) unanticipated changes in investors' desired time to receive payouts.
C) unanticipated changes in short-term and long-term inflation rates.
D) unanticipated changes in the willingness of investors to take on investment risk.
E) None of these are correct.

Question

Quizplus · Accepted Answer

Confidence risk represents unanticipated changes in the willingness of investors to take on investment risk. This can be caused by changes in market sentiment, economic indicators, or other factors that impact investors' confidence in the market. It is a component of the broader market risk factor in a multifactor model. Choices A, B, and C are incorrect because they refer to different factors, such as changes in business activity, desired time horizon, and inflation rates, which are distinct from confidence risk.

In a Multifactor Model, Confidence Risk Represents