4. An investor is valuing the shares and bonds of AwesomeCompany. She is valuing
the shares at an interest rate of 9.25% and the bonds at an interest rate of 7% p.a.
(i) State two reasons why shares are considered more risky than bonds. (2)
(ii) When the investor is valuing AwesomeCompany shares:
A the risk free rate is 7% and the risk premium is 2.25%
B the risk free rate is more than 7% and the risk premium is less than 2.25%
C the risk free rate is less than 7% and the risk premium is more than 2.25%
D the risk free rate is less than 7% and the risk premium is less than 2.25%
E the risk free rate is more than 7% and the risk premium is more than 2.25%
F None of the above
For 4(ii), please may someone explain why the answer is C?