Assuming Everything Else Equal, One of the Concepts to Consider

question 7

Multiple Choice

Assuming everything else equal, one of the concepts to consider to make sound financial decisions is that _____.

• A) the riskier assets always have lower market value
• B) the riskier assets are more valuable than (preferred to) less risky assets
• C) the sooner cash is received, the more valuable it is
• D) investors always prefer short-term, low value, and high-risk assets
• E) investors always achieve higher returns from less risky assets

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Definitions:

Market Risk

The risk of losses in investments due to factors that affect the entire market or asset class, such as economic changes or political events.

Firm-specific Risk

The type of risk that affects a particular company or industry, also known as unsystematic risk.

Diversified Away

The risk that can be reduced or eliminated in a portfolio through investments in a variety of assets, thus not tied to the performance of a single investment.

Market Risk

The risk of losses in positions arising from movements in market prices.