Question

If investors are risk averse, it is reasonable to assume that the risk premium for the stock market will be Blank______.

Multiple choice question.

zero


unimaginably large


positive


negative

Answer 1

If investors are risk averse, it is reasonable to assume that the risk premium for the stock market will be **positive**.

This is because risk-averse investors require a premium for taking on additional risk compared to a risk-free asset.