Rate of Return - Please Help!!?

Question

I would really appreciate it if somebody could answer this question for me, thanks a bunch. :-)

The variance in an asset's rate of return measures this asset's risk; the more volatile the return, the more difficult it is to predict.

All else being equal, when the variance of an asset's rate of return falls, the demand for an asset will:

A. Fall because this implies a decrease in expected return

B. Rise because this implies an increase in expected inflation

C. Fall when investors are risk-averse

D. Fall when investors are risk-neutral

E. Rise when investors are risk lovers

F. Rise when investors are risk-averse

Answer 1

I'm not crazy about the way this question is stated.

Let's assume that the mean ending asset value stays the same and the variance decreases. Then risk averse investors will accept a lower return. This means that demand from risk averse investors will increase.

Answer 2

F - lower varience = lower risk so risk adverse investors will switch to the asset which will increase the demand for the asset

Answer 3

F. Rise when investors are risk-averse

Answer 4

I'm not sure but I do accounting ....my guess will be choice A .....if the rate of return falls that means the the demand for it has fallen as well you would not be able to turnover the asset as quickly....that's my logical thinking

Answer 5

F is the answer.