The return that borrowers expect to earn on their investments

The preference of savers to spend their income in the current period rather than delay their consumption until some future period

The risks associated with the investment

Expected inflation

Consider the following statements that address these factors, and indicate if you think each statement is true or false.

Statement

Oll things being equal, savers and investors prefer more risk to less risk and prefer lower risk premiums on projects exhibiting

higher levels of risk.

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.

The actual relationship between the risk$-$free rate of return $(r^{**})$ and the expected future inflation rate or inflation premium $($IP$)$ is

actually multiplicative$-$that is$,[(1+r_{RF})(1+IP)]-1-$but it is often simplified to reflect an additive relationship.

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.