If One Security Has a Greater Risk Than Another Security

question 10

Multiple Choice

If one security has a greater risk than another security, how will investors respond?

• A) They will require a lower rate of return for the investment that has greater risk.
• B) They would be indifferent regarding their expectation of rates of return for either investment.
• C) They will require a higher rate of return for the investment that has greater risk.
• D) None of the above.

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Definitions:

Past Consideration

Refers to an act or benefit given in the past that cannot be legally considered as an inducement for a contract.

Illusory Promise

A statement that appears to be a promise but is too vague or lacks the requisite commitment to be legally enforceable as a contract.

Promissory Estoppel

A legal principle that prevents a promisor from arguing that an underlying promise offered should not be legally upheld if the promisee has relied on that promise to their detriment.

Unilateral Contract

A type of contract in which only one party makes a promise to perform in exchange for an act by the other party.