After adjusting for risk, the expected return on different assets should be:
A) higher for stocks than bonds.
B) higher for actively managed assets than for passively managed assets.
C) zero.
D) equal.

Question

Quizplus · Accepted Answer

After adjusting for risk, the expected return on different assets should be equal. This is because investors should be compensated for the amount of risk they take on, so the expected return should be the same for assets that have the same level of risk. Therefore, both stocks and bonds can have the same expected return after adjusting for risk, and actively managed assets may not necessarily have a higher expected return than passively managed assets if the level of risk is the same.

After Adjusting for Risk, the Expected Return on Different Assets