Someone who is risk averse has a general dislike for risk and a preference for certainty. If risk aversion eists in the market, then investors in general are willing to accept somewhat lower returns on less risky securities. Different investors have different degrees of risk aversion, and the end result is that investors with greater risk aversion tend to hold securities with lower risk (and therefore a lower expected return) than investors who have more tolerance for risk. True or false?

Question

Business

Belen Mcdonald

29 July, 10:50

Someone who is risk averse has a general dislike for risk and a preference for certainty. If risk aversion eists in the market, then investors in general are willing to accept somewhat lower returns on less risky securities. Different investors have different degrees of risk aversion, and the end result is that investors with greater risk aversion tend to hold securities with lower risk (and therefore a lower expected return) than investors who have more tolerance for risk. True or false?

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Answers (1)

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Damon Mitchell · Answer 1

False

Explanation:

A low risk investment slightly increase over time whereas high risk investment may loose or win a lot of money.

So, a person who is risk averse is likely to attract towards capital than preference over higher return.