If stocks are more risky than bonds, why would a rational investor ever buy stocks?
Although stocks are more risky than bonds, the probable rate of return is also higher for stocks. For a higher return, some investors are willing to accept the higher risk. In addition, with diversification, it is possible to reduce the risk of the portfolio of investments. Although the risk of each individual stock may be high, the risk of the portfolio will generally be much lower. The rational investor will select a portfolio that gives acceptable risk for the expected return.
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Suppose the lack of agricultural land is a key reason for the slow economic growth of Lithasia. This argument claims that:
A) geography is the fundamental cause of slow economic growth in Lithasia. B) stock of physical capital is a fundamental cause of slow economic growth in Lithasia. C) stock of human capital is a proximate cause for slow economic growth in Lithasia. D) geography is a proximate cause of slow economic growth in Lithasia.
Mismatch and turnover unemployment, while conceptually easy to distinguish, are often difficult to identify. Ceteris paribus, a person out of work for two months would be classified by Gordon as
A) experiencing turnover unemployment. B) experiencing mismatch unemployment. C) impossible to distinguish the type. D) first frictionally unemployed (the first month) and then structurally unemployed.