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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 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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