Because savers are generally risk-averse a. the long-run return on corporate bonds is greater...

Question:

Because savers are generally risk-averse

a. the long-run return on corporate bonds is greater than the long-run return on corporate stocks.

b. they are more concerned about expected returns than about the variability of those returns.

c. they prefer higher returns to lower returns, holding default risk constant.

d. yields incorporate an extra premium for bearing default risk.

Investment

Investment plays a crucial role in the economy as it is one of the components of aggregate demand. Investment by the private sector or government sector helps to boost the economic growth of the country. Investment and savings are considered equal.

Answer and Explanation:

Option B

Savers are generally risk-averse because they are more concerned about expected returns than about the variability of those returns. Variability, in simpler words, means divergence of return from average or mean value. Hence, in order to minimize risk, an investor would invest where the variability of return is minimum and expected return is maximum.


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Investment Risks: Definition & Types

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