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Question 2B

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Essentials Of Investments
Found in: Page 258
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

“If all securities are fairly priced, all must offer equal expected rates of return.” Comment

The phrase should have been tweaked to say “expected risk adjusted returns”.

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Step by Step Solution

Definition

True to its name, the expected risk adjusted returns measures the profit earned from the investment relative to the risk it carried.

Explanation

In the above scenario, it would have been more appropriate to say “expected risk adjusted returns”.

All the securities have same risks adjusted expected returns. However because of certain unforeseen events, their results may vary. Since these are not known in advance hence the known information is used to set in the expectation.

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