[amp_mcq option1=”linear” option2=”non-linear” option3=”efficient” option4=”effective” correct=”option2″]<\/p>\n
The correct answer is B. non-linear.<\/p>\n
A risk-free asset is an asset whose future return is known with certainty. A risky asset is an asset whose future return is uncertain. The relationship between a risk-free asset and a single risky asset is always non-linear. This is because the return on a risky asset is a function of both the return on the risk-free asset and the risk premium of the risky asset. The risk premium is the additional return that investors demand for holding a risky asset over a risk-free asset. The risk premium is always positive, so the return on a risky asset will always be greater than the return on a risk-free asset. However, the relationship between the return on a risky asset and the return on a risk-free asset is not linear. This is because the risk premium is not constant. The risk premium will vary depending on the level of risk in the economy and the risk aversion of investors.<\/p>\n
Option A is incorrect because the relationship between a risk-free asset and a single risky asset is not always linear.<\/p>\n
Option C is incorrect because the relationship between a risk-free asset and a single risky asset is not always efficient.<\/p>\n
Option D is incorrect because the relationship between a risk-free asset and a single risky asset is not always effective.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”linear” option2=”non-linear” option3=”efficient” option4=”effective” correct=”option2″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-44217","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"\n