Asked by linda farran on Jun 23, 2024
Verified
The principle of risk aversion can best be described as:
A) the observation that investors are unwilling to acquire very risky securities regardless of their risk premiums.
B) the hypothesis that people always prefer investments with less risk to those with more risk if the expected returns are equal.
C) the observation that risky securities usually offer unattractive expected returns when the possibility of loss is considered.
D) All of the above
Risk Aversion
A preference for safer investments, avoiding risk even at the expense of lower potential returns.
Risky Securities
Financial instruments that carry a high level of risk, offering the potential for higher returns in exchange for greater likelihood of loss.
Risk Premiums
Additional returns demanded by investors for taking on higher risk, varying according to the perceived risk of the investment.
- Elucidate the principle of risk aversion and its impact on investor behavior.
Verified Answer
Learning Objectives
- Elucidate the principle of risk aversion and its impact on investor behavior.
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