Which of the following statements are correct?
I.The risk-free rate of return generally earns a risk premium of about one per cent.
II.The reward for bearing risk is called the standard deviation.
III.Based on historical returns,there are rewards for bearing risk.
IV.In general,the higher the risk,the higher the expected return.

Question

Quizplus · Accepted Answer

I is incorrect as the risk-free rate of return is by definition, free from risk and does not earn a risk premium. II is incorrect as the reward for bearing risk is measured by the expected return or excess return, not the standard deviation. III is correct as historical returns provide evidence of rewards for bearing risk. IV is generally true as compensation for bearing risk is expected in the form of higher returns. Therefore, only III and IV are correct, making B the correct choice.

Which of the Following Statements Are Correct