The Extra Compensation Paid to an Investor Who Invests in a Risky

question 30

Multiple Choice

The extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset is called the

• A) Inefficient premium
• B) Diversification benefit
• C) Expected return
• D) Portfolio adjustment
• E) Risk premium

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Definitions:

Maximum Profit

The highest possible financial gain that a firm can achieve from its operations.

Deadweight Loss

The decrease in economic performance that happens when a good or service fails to meet or cannot attain its optimal distribution point.

Marginal Cost

The cost of producing one additional unit of a good or service, considering all variable resources used in production.

Monopolistic Competition

A type of imperfect competition such that many producers sell products that are differentiated from one another (e.g., by branding or quality) and hence are not perfect substitutes.