Which one of the following is a correct statement concerning risk premium? The g
ID: 2618303 • Letter: W
Question
Which one of the following is a correct statement concerning risk premium?
The greater the volatility of returns, the greater the risk premium.
The lower the volatility of returns, the greater the risk premium.
The lower the average rate of return, the greater the risk premium.
The risk premium is not correlated to the average rate of return.
The risk premium is not affected by the volatility of returns.
The greater the volatility of returns, the greater the risk premium.
The lower the volatility of returns, the greater the risk premium.
The lower the average rate of return, the greater the risk premium.
The risk premium is not correlated to the average rate of return.
The risk premium is not affected by the volatility of returns.
Explanation / Answer
Ans The greater the volatility of returns, the greater the risk premium.
Higher the volatility of returns, higher would be the risk premium as investors tend to pay high premium when there are chances of high returns.
All other options are incorrect.
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