Discussion Board (Respond yo student post below)

The difference in the expected rates of return can be attributed to the two investments and might arise due to valuation and risk. It might happen that the risk of both investments is different, the second investment is risky and hence to compensate, it has to offer a questionable premium.

An investment like this is expected to pay a higher interest rate while a relatively less risky investment is expected to pay a lower interest rate. It might happen that both investments is same, but the market has priced it incorrectly thus lowering the price and increasing the return