The fundamental relationship that exists between the risk and returns in a well-regulated market. Introduction: The reward-to-risk ratio indicates the return of a risky asset relative to its beta. The difference between the expected return on a risky asset and the risk-free rate divided by the beta coefficient of the security will give the reward-to-risk ratio of a security. The reward-to-risk ratio is expressed as follows: Reward-to-risk ratio = E ( R i ) − R f β i Where, “E (R i )” refers to the expected return on a risky asset “R f ” refers to the risk-free rate “β i ” refers to the beta coefficient of the risky asset

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Chapter 13.7, Problem 13.7ACQ

Summary Introduction

To discuss: The fundamental relationship that exists between the risk and returns in a well-regulated market.

Introduction:

The reward-to-risk ratio indicates the return of a risky asset relative to its beta. The difference between the expected return on a risky asset and the risk-free rate divided by the beta coefficient of the security will give the reward-to-risk ratio of a security. The reward-to-risk ratio is expressed as follows:

Reward-to-risk ratio=E(Ri)−Rfβi

Where,

“E (R_i)” refers to the expected return on a risky asset

“R_f” refers to the risk-free rate

“β_i” refers to the beta coefficient of the risky asset

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