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Question

A risk-averse investor is best described as an individual as __________

A The one who only invests in risk-free securities Correct Answer Incorrect Answer
B Will always choose a more volatile portfolio over a less volatile portfolio Correct Answer Incorrect Answer
C Prefers investments with less risk to those with more risk if they have the same expected return Correct Answer Incorrect Answer
D Invests in government securities Correct Answer Incorrect Answer
E Invests only in equity Correct Answer Incorrect Answer

Solution

Risk-averse investors prefer lower risk to higher risk for a given level of expected return and will accept a riskier investment if they are compensated with a higher expected return. A risk-averse investor does not avoid risk altogether.

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