Demand for risky assets, Microeconomics

Demand for Risky Assets

*  Assets

- Something which provides a flow of money or services to its owner.

-  The flow of money or services can be explicit or implicit .

*  Capital Gain 

- An increase in value of an asset, while the decrease is a capital loss.

*  Risky & Riskless Assets

- Risky Asset 

  • Provides uncertain flow of money or services to the owner.
  • Examples

- Apartment rent, corporate bonds, capital gains, stock prices

- Riskless Asset

  • Provides flow of money or services which is known with certainty.
  • Examples

- Short term government bonds, short term certificates of deposit

*  Asset Returns

- Return on an Asset

-  The total monetary flow of asset as fraction of its price.

- Real Return of an Asset

-  The simple return less the rate of inflation.

*  Asset Returns

  Expected versus Actual Returns

- Expected Return

  • Return which an asset should earn on average

- Actual Return

  • Return which an asset earns

- Higher returns are associated with the greater risk.

- The risk averse investor should balance risk relative to return

* Risk and Budget Line

  Expected return, RP, increases as the risk increases.

 The slope is price of risk or risk-return trade-off.

Choosing Between Risk and Return
493_choices of two different investors.png

The Choices of Two Different Investors

151_choices of two different investors1.png

Posted Date: 10/10/2012 9:08:26 AM | Location : United States







Related Discussions:- Demand for risky assets, Assignment Help, Ask Question on Demand for risky assets, Get Answer, Expert's Help, Demand for risky assets Discussions

Write discussion on Demand for risky assets
Your posts are moderated
Related Questions
REAL VERSUS NOMINAL PRICES • Nominal price is a complete or current dollar price of a good or service when it is sold. • Real price is the price related to a combined me

Suppose a government uses an expansionary fiscal policy to get out of a recession. Use the IS/LM model and the IS-PC-MR model to explain what monetary policy to pursue.

pls i want to estimate a cost function for the data i coollected from a research on cassava production .i have the cost for each input and output but do not how to go abo0ut it.


The largest public utility company in New South Wales (NSW) is the sole provider of electricity across all regions in the state. The monthly demand for electricity in NSW is given

Explain the meaning of the statement "coffee and tea are close substitutes".

clarify the opportunity cost theory

How dose PPC help, illustrate the basic economic problem?


explain about rent theory