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What is risk aversion

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Question 1. One of the key reasons for the time value of money is risk. What is risk aversion? How can we measure it? Why is it important to financial decision making?

Question 2. The Capital Asset Pricing Model (CAPM) is a simple but useful tool. Thus, the CAPM is also a one-period time value tool.
In the CAPM, a securities return depends on three variables; the risk-free rate, beta, and the return on the market portfolio. Of these, which is the most difficult to estimate?

Question 3. Much discussion lately has been concerned with whether or not the FED should raise interest rates. Read the article Fed should not raise rates to fight financial risk: Evans, from the following link:

https://www.reuters.com/article/us-usa-fed-evans-stability-idUSBRE99H0SC20131018

How would high rates reduce risk-taking? How would low rates encourage investment?

Also provide references.
Write in 2 pages.

Reference no: EM131344277

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