Which of the following statements best describes the relationship between asset prices and average expected returns?

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), there is a positive relationship between the level of risk associated with an asset and the average expected return it promises. Therefore, less risky assets will have lower average expected returns, which means investors will only be willing to buy such assets if their prices are lower. Conversely, more risky assets will offer higher average expected returns, meaning that investors will be willing to pay a higher price for them. Therefore, less risky assets will have higher prices than more risky assets.

Which of the Following Statements Best Describes the Relationship Between