Which One of the Following Statements Is Correct

question 2

Multiple Choice

Which one of the following statements is correct?

• A)The risk premium on a risk-free security is generally considered to be one percent.
• B)The expected rate of return on any security, given multiple states of the economy, must be positive.
• C)There is an inverse relationship between the level of risk and the risk premium given a risky security.
• D)If a risky security is correctly priced, its expected risk premium will be positive.
• E)If a risky security is priced correctly, it will have an expected return equal to the risk-free rate.

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Definitions:

Fixed Cost

Costs that do not change with the level of output or production, such as rent, salaries, and insurance, which are incurred regardless of business activity levels.

Total Cost

The complete amount of expenses incurred by a business in producing goods or services, including both fixed and variable costs.

Quantity Change

An alteration in the amount of goods or services supplied or demanded in a market.

Average Fixed

The fixed costs of production divided by the quantity of output produced, illustrating how those costs are spread over output.