Risk-averse investors will hold a portfolio of safe stocks

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Reference no: EM131500359

Suppose that the assumptions we made in deriving the CAPM hold. In particular, you can borrow or lend at the risk-free rate and you only care about expected return and volatility when investing.

Consider the following statement:

More risk-averse investors will hold a portfolio of safe stocks with lower expected return and lower volatilities. Investors who are less afraid of risk will hold a portfolio with riskier stocks with higher expected returns and higher volatilities.

Do you agree or disagree with this statement? In at most 35 words, explain why.

Reference no: EM131500359

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