What do the slopes of the risk-return lines illustrated in Figure 8.1 indicate? FIGURE 8.1 Panel a:

What do the slopes of the risk-return lines illustrated in Figure 8.1 indicate?

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FIGURE 8.1 Panel a: The Individual Investor's Perspective Investment Return The Trade-Off between Risk and Return Good investments: The return is sufficient to compensate for the perceived risk. Risk-Return Trade-Off Bad investments: The return is insufficient to compensate for the perceived risk. Investment Risk Note: The slope of the risk-return line depends on the individual investor's willingness to take on risk. A steeper line indicates that the investor is more risk-averse. Panel b: Perspective of a Company Raising Money to Invest in Risky Projects Project Return Good investments: The project's return exceeds the cost of capital. Cost of Capital Bad investments: The project's return does not exceed the cost of capital. Project Risk Note: The slope of the cost of capital line depends on the willingness of the average investor in the market to take on risk. A steeper line indicates that the average investor is more risk-averse.