Question

Why do investors demand a higher expected rate of return from risky investments compared to safe investments?

a.

To encourage companies to invest in high-risk ventures

b.

To compensate for the risks of default and commercial failure

c.

To stabilize the financial markets

d.

To discourage investment in safer assets

Answer: (b).To compensate for the risks of default and commercial failure Explanation:Investors demand a higher expected rate of return from risky investments compared to safe investments to compensate for the risks of default, commercial failure, and other uncertainties associated with such investments.

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Q. Why do investors demand a higher expected rate of return from risky investments compared to safe investments?

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