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

Posted under IC 92 Actuarial Aspects of Product Development

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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