Financial Risk Manager Part 2
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Q-6. Which behavior does asset payoffs and "bad times" events would most likely perform?
A
The expected payoff of an asset in bad times is unrelated to the asset's expected return, because arbitrageurs eliminate any expected return potential.
B
The expected payoff of an asset in bad times is unrelated to the asset's expected return, because it depends on investor preferences.
C
The higher the expected payoff of an asset in bad times, the higher the asset's expected return.
D
The higher the expected payoff of an asset in bad times, the lower the asset's expected return