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

Measuring Cost: Which Costs Matter? Accounting Cost versus Economic Cost - Accounting Cost Actual expenses and adding the depreciation charges for the capital equip

Business sell to households in the resource markets, but households sell to businesses in the product market

risk describe,prefrence towards risk,the demand for risky assets.consumer behaviour under asymmetricinformation

Private and Social Benefits Private benefits are those which accrue to an individual. They may be both monetary and non monetary, direct and indirect. Earnings of an individua

A company a product using labor (L) and raw material (R) with Q = 80L^0.2 R^0.8. If labor costs $20 per hour and raw material $40 per unit, what is the optimal combination (least c

What are the properties of indirect utility function? Properties of the indirect utility function: While u(x) is continuous and monotonic onto R L + and (p, m) > 0, the in

Assume that John has the following preference relation over two goods, bread and bear (x1, x2). He strictly prefers any bundle x over y whenever x haves more bear than y, whatever

how do cooperative and noncooperative games differ

Question 1: a) Describe the labour market Information. b) What are the basic factors that affect the labour market trend? c) Explain the influence of these factors on th