The expected return on an investment: A)will be negatively related to the risk of the investment B)will increase when risk-free rate increases, all else being equal C)is the difference between r _risk-free and r _{risk premium} D)Includes interest and dividends, but not capital gains or losses. E)All of these.

Question

Quizplus · Accepted Answer

The expected return on an investment tends to increase when the risk-free rate increases, assuming all other factors remain constant. This is because the risk-free rate is a component of the expected return, as per the Capital Asset Pricing Model (CAPM), where the expected return on an investment equals the risk-free rate plus the risk premium.

The Expected Return on an Investment