Most investors are risk averse which means____________.
A. they will assume more risk only if they are compensated by higher expected return
B. they will always invest in the investment with the lowest possible risk
C. they avoid the stock market due to the high degree of risk
D. None of the above
Answer: Option C
Solution (By Examveda Team)
Most investors are risk averse which means they avoid the stock market due to the high degree of risk. A risk-averse investor, on the other hand, dislikes risk and, thus, stays away from high-risk stocks or investments and is prepared to forego higher rates of return.This Question Belongs to Commerce >> Financial Management
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Investment is the _______________.
A. net additions made to the nation’s capital stocks
B. person’s commitment to buy a flat or house
C. employment of funds on assets to earn returns
D. employment of funds on goods and services that are used in production process
Financial Management is mainly concerned with ______________.
A. All aspects of acquiring and utilizing financial resources for firms activities
B. Arrangement of funds
C. Efficient Management of every business
D. Profit maximization
The primary goal of the financial management is ____________.
A. to maximize the return
B. to minimize the risk
C. to maximize the wealth of owners
D. to maximize profit
In his traditional role the finance manager is responsible for ___________.
A. proper utilisation of funds
B. arrangement of financial resources
C. acquiring capital assets of the organization
D. efficient management of capital
The correct answer is A. they will assume more risk only if they are compensated by higher expected return.
Understanding Risk Aversion
Risk aversion is a concept in finance and economics describing the behavior of investors who, when faced with two investments with the same expected return, will choose the one with the lower risk.
It means that an investor:
Dislikes uncertainty (risk).
Requires extra compensation (a higher expected return, known as the risk premium) to accept an increase in risk.
Therefore, a risk-averse investor does not avoid risk entirely (B and C are incorrect), but instead demands a trade-off: Risk and return are positively correlated for them.
B is incorrect because constantly choosing the lowest risk means missing potential gains.
C is incorrect because risk-averse investors participate in the market but structure their portfolios to manage risk (e.g., diversification).
Ha ha ha😂. Who explained like this. A answer always right.