EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 6, Problem 1PS
Summary Introduction
To select: The statement which completes the sentence that an investor with higher degree of risk aversion compared to the lower degree of aversion.
Introduction : The risk aversion investors are used to reduce the risk of the portfolios and it can also reduce the risk completely. The risk-aversion investors can avoid the default risk by selecting the government guarantee securities.
Expert Solution & Answer
Answer to Problem 1PS
The correct option is (e).
Explanation of Solution
Given information : The investor with higher degree of risk aversion is compared with lower degree of risk aversion.
The investments which has low standard deviation has low risk therefore investors includes the investments with the value of low standard deviation.
The analysis of the risk return −trade off is called as sharpe ratio but the investor with risk averse do not ready to take any kind of risk on their portfolio. Therefore sharpe ratio of the risky portfolios is low.
The rationale investor always required the high sharpe ratio for his portfolio and to obtain that he will chose only treasury bond and T-bills investments for investment alternatives.
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Students have asked these similar questions
Give typing answer with explanation and conclusion
The additional compensation that investors require to take on higher risk investments is the a. standard deviation. b. coefficient variation. c. Sharpe ratio. d. risk premium. e. risk aversion.
When describing the attitude of investors
towrds risk, which statement is correct?
A.Investors may behave as though they are
risk seekers for small investments
B.For a risk-averse investor, the standard
deviation of the return distribution is a
relevant measure of risk
C.Investors behave as though they are risk
averse for investments of significant size
D.All of the above
Which one of the following statements is correct?
Group of answer choices
The lower the average return, the greater the risk premium.
The greater the volatility of returns, the greater the risk premium.
The lower the volatility of returns, the greater the risk premium.
The risk premium is not affected by the volatility of returns.
The risk premium is unrelated to the average rate of return.
Chapter 6 Solutions
EBK INVESTMENTS
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
Knowledge Booster
Similar questions
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- If an investor prefers investment with higher risk, regardless to the return then he is following a strategy. O a. risk-aware O b. risk-averse C. risk-seeking O d. risk-neutralarrow_forwardWhen can investors treat beta as a relevant risk measure and when can they treat beta as only a systematic risk measure? Explain the two cases clearly and carefully (Explain using a graph and make sure you label the axes)arrow_forwardComparing Value at Risk (VAR) and Expected Shortfall (ES), which is preferred by regulators for measurement of market risk and why? Please explain your answer.arrow_forward
- Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.arrow_forwardList which of the following statement(s) concerning risk are correct? 1. Nondiversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for nondiversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.arrow_forwardWhich of the following statements correctly describe characteristics of a risk averse investor? Group of answer choices A. A risk-averse investor may be willing to give up some expected return in order to be exposed to a higher level of risk. B. Given a choice, a risk-averse investor will always choose the investment with the lower level of risk when deciding between two investments offering different levels of expected return. C. More than one of the other statements is correct. D. A risk-averse investor will demand compensation in the form of higher expected returns in order to take on investments with higher risk.arrow_forward
- When comparing investments that have different means, the measures the relative riskiness of each investment and is a better indicator of risk than the standard deviation.arrow_forwardWhich of the following statements regarding unsystematic risk is accurate? Multiple Choice It is measured by beta. It is compensated for by the risk premium. It can be effectively eliminated by portfolio diversification. It is measured by standard deviation. It is related to the overall economy.arrow_forwardFor a risk-averse investor, which of the following portfolios would be preferred? Portfolio B, with a Sharpe Ratio of 3. Portfolio A, with a Sharpe Ratio of 4. Portfolio D, with a Sharpe Ratio of 1. Portfolio C, with a Sharpe Ratio of 2.arrow_forward
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