A. Statement:.
1. Investments providing cash flows that are more likely to equal their expected value are said to exhibit more risk.
2. On average and everything else held constant, an investment that can provide a 4% return should attract more investment capital from savers/investors than an otherwise identical investment that can generate a 12% return.
3. All things being equal, rational savers and investors prefer to invest in an asset that provides a 12% return rather than one that provides an 8% return.
4. The inflation premium used to calculate the nominal interest rate on a five-year security should be equal to the rate of inflation expected in year 5 of the investment.
B. The false statements are:.
a. 1, 2, and 3.
b. 1 and 3.
c,. 2 and 4.
d. 1, 2, 3, and 4.