Explain risk aversion, Financial Management

Assignment Help:

What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies?

Risk aversion is the trend to avoid additional risk. Risk-averse people will prevent risk if they can, if not they receive additional compensation for assuming that risk.  In finance, the added compensation is a higher expected rate of return.

People are not all are equally risk averse. For instance, some people are willing to buy risky stocks, whereas others are not.  The ones that do, though, almost all time demand an suitably high expected rate of return for taking on the additional risk.


Related Discussions:- Explain risk aversion

Internal rate of return (irr), Internal Rate of Return (IRR) : This rat...

Internal Rate of Return (IRR) : This rate attempts to find the earnings rate, which equates the current value of the streams of earnings to the investment outlay. IRR is descri

Finance, Do you provide help in college level Managerial Finance?

Do you provide help in college level Managerial Finance?

Receivables management, Receivables Management The decision on whether...

Receivables Management The decision on whether to grant or not to grant credit to a particular customer can be taken if certain subjective probabilities of the payment pattern

What is capital budgeting, What is Capital Budgeting Capital Budgeting...

What is Capital Budgeting Capital Budgeting is probably the most financial decision for a firm. It relates to selection of an asset or investment proposal or course of action

Compare diversifiable and nondiversifiable risk, Compare diversifiable and ...

Compare diversifiable and nondiversifiable risk. Which do you believe is more significant to financial managers in business firms? Actually Diversifiable risk can be dealt with b

Spot transaction hedge/Money market hedge, There are three parts to this qu...

There are three parts to this question. Please answer all parts. The Chicken Company, a company with headquarters in Switzerland, has a receivable of one million euro, which it wil

Abnormal earnings valuation model, Abnormal Earnings Valuation Model Ab...

Abnormal Earnings Valuation Model Abnormal Earnings Valuation Model is a method to analyse the value of the firm. The value of the firm can be the sum of three components - the

Offshore financial center, Offshore Financial Center It is a location w...

Offshore Financial Center It is a location with banking facilities to accept deposits and make loans in currencies various from the currency's country of origin. Banks located

Investment of surplus cash, I need a report on the topic Investment of Surp...

I need a report on the topic Investment of Surplus Cash. Can you please assist me for Investment of Surplus Cash report for about 2000 words?

What is price earnings ratio, What is the Price earnings (PE) ratio PE ...

What is the Price earnings (PE) ratio PE = Market share price/EPS (no. of times) PE ratio is the most widely quoted investors 'ratio. It demonstrates market confidence in a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd