What is risk aversion, Financial Management

Assignment Help:

What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies?

Risk aversion is the tendency to evade further risk. Risk-averse people will evade risk if they can, except they receive additional compensation for assuming that risk.  In finance, the additional compensation is a higher expected rate of return.

People aren't all are equally risk averse. For illustration, a few people are willing to buy risky stocks, while others aren't.  The ones that carry out, though, almost for all time demand an appropriately high expected rate of return for taking on the additional risk.

 

 


Related Discussions:- What is risk aversion

Determine the management buy-outs, Determine the Management buy-outs ...

Determine the Management buy-outs Management buy-outs (MBOs) The management of company buy out the shareholders. Management will usually require financial backers (ventu

Role of financial intermediaries in the financial system, Role of Financial...

Role of Financial Intermediaries in the financial system: Having designed the instrument, the issuer should then ensure that these financial assets reach the ultimate investor

APPLICABILITY OF OPERATING CYCLE, #questioDiscuss the applicability of an o...

#questioDiscuss the applicability of an operating cycle in the vegetable growing business n..

Estimating working capital requirements, ESTIMATING WORKING CAPITAL REQUIRE...

ESTIMATING WORKING CAPITAL REQUIREMENTS To facilitate, estimate the extent of working capital requirement of a firm, various factors are to be considered. There are various me

Working capital cycle for a trade, Working capital cycle for a trade ...

Working capital cycle for a trade Inventories days (time inventories are held before being sold)   Plus   Trade receivables days (how long

Discounting technique for calculating time value of money, DISCOUNTING TECH...

DISCOUNTING TECHNIQUE is also called present value technique. It is the process of calculating the present value of cash flows.  Discounting is determining the present value of a

Describe the value maximisation criterion, Describe the value maximisation ...

Describe the value maximisation criterion In applying the value maximisation criterion, term value is used in terms of worth to the owners, which is, ordinary shareholders. Cap

Common-size balance sheet and income statement, The question to be answere...

The question to be answered is : "Since the 1990 opening of stock exchanges, China started to use financial statements to determine the performance of listed companies. What were c

Weighted average cost of capital of firm, Weighted average cost of capital ...

Weighted average cost of capital of Firm: Use the following information to answer the questions. Security Beta Expected retur

Analysis on the stocks, Yellow: is the company which their stock performanc...

Yellow: is the company which their stock performance was forecasted by analyst Blue: is the name of the company which made the recommendation by the analyst who work for it R

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd