Question

Both rational investors (such as an investor using the CAPM to determine its investment strategy) and irrational investors (such as an investor who have the psychology of a gambler) take on risk. The difference between these two types of investors is that a rational investor _______.

		a) requires a risk premium to take on the risk
		b) is normally risk neutral
		c) knows he or she will not lose money
		d) knows the outcomes at the beginning of the holding period

Answer 1

The difference between these two types of investors is that a rational investor:-

a) requires a risk premium to take on the risk