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25 April, 16:44

Which of the following statements regarding risk-averse investors is true?

A. They only accept risky investments that offer risk premiums over the risk-free rate.

B. They only care about the rate of return.

C. They are willing to accept lower returns and high risk.

D. They accept investments that are fair games.

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  1. 25 April, 16:46
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    A. They only accept risky investments that offer risk premiums over the risk-free rate.

    Explanation:

    A risk-averse investor would only accept a risky investment if there is some sort of compensation for taking said risk (besides the possibility of earning a higher return).

    The problem with the higher returns, is that they are a possiblity, not something that is bound to happen. Therefore, the risk-averse investor needs a safe risk premium that is paid to him whether the returns are attained or not.
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