If a stock or bond is risky
A)risk averse people may be willing to hold it as part of a diversified portfolio.
B)risk averse people may be willing to hold it if the expected return is high enough.
C)both A and B are correct.
D)risk averse people will not hold it.

Question

Quizplus · Accepted Answer

Risk averse people may be willing to hold a risky stock or bond if it is part of a well-diversified portfolio, and/or if the expected return is high enough to compensate for the perceived risk. Therefore, both options A and B are correct. However, if the perceived risk is too high and the expected return is not sufficient, risk averse people will likely not hold the security.

If a Stock or Bond Is Risky