The average expected rate of return on most financial assets is the sum of the rates that compensate for:
A) nondiversifiable risk and time preference.
B) diversifiable risk and time preference.
C) nondiversifiable and diversifiable risk.
D) nondiversifiable and diversifiable risk,and time preference.

Question

Quizplus · Accepted Answer

The average expected rate of return on most financial assets is a combination of two things - compensation for nondiversifiable risk (also known as systematic risk or market risk) and compensation for time preference (also known as the opportunity cost of holding money). Therefore, choice A is the best option as it includes both nondiversifiable risk and time preference.

The Average Expected Rate of Return on Most Financial Assets