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

Financial management and production department, The production department i...

The production department in any firm is concerned with provision of production facilities, production cycle, skilled and unskilled labor, storage of finished goods, capacity utili

Credit card receivable-backed securities, For holders of CARDS,...

For holders of CARDS, the interest is paid monthly and the principal is not amortized. The principal payments made by credit card borrowers are

Price supports or acreage limitation programs cost society, Suppose the gov...

Suppose the government wants to increase farmers’ incomes.  Why do price supports or acreage limitation programs cost society more than simply giving farmers money? Price acrea

Cost of preference equity-irr , 1.  Find out the present value of Rs. 10,00...

1.  Find out the present value of Rs. 10,000 to be required after 4 years if the interest rate is 6%. 2.  A Firm can invest Rs. 10,000 in a project with a life of three years.

Advantages of trade credit, Q. Advantages of Trade Credit? i) Easy Avai...

Q. Advantages of Trade Credit? i) Easy Availability: Unlike other sources of finance, trade credit is relatively easy to obtain. Except in the case of financially very unsou

Option-adjusted spread, The Option-Adjusted Spread (OAS) is a measu...

The Option-Adjusted Spread (OAS) is a measure of the yield spread (expressed in basis points) which can be used to convert differences between the values an

Risk return relationship, RISK RETURN RELATIONSHIP A business operates...

RISK RETURN RELATIONSHIP A business operates in a market environment, which is not within its control. It is exposed to several dangers from the internal with external sources

Explain the fixed and floating rates, Question 1 Globalization is a pro...

Question 1 Globalization is a process of international integration that arises due to increasing human connectivity as well as the interchange of products, ideas and other aspe

On-the-run treasury issues, On-the-run treasury issues are the most r...

On-the-run treasury issues are the most recently auctioned issues of a given maturity. They include Treasury bills of 3-month, 6-month and 1-year maturity;  treas

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