What is 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 tendency to evade further risk. Risk-averse people will evade risk if they can, except they receive additional compensation for assuming that risk.  In finance, the additional compensation is a higher expected rate of return.

People aren't all are equally risk averse. For illustration, a few people are willing to buy risky stocks, while others aren't.  The ones that carry out, though, almost for all time demand an appropriately high expected rate of return for taking on the additional risk.

 

 


Related Discussions:- What is risk aversion

Benefits of securitization, Securitization has attracted a widespread...

Securitization has attracted a widespread application of the technique to residential mortgage loan, the easiest class of a financial asset to securitize, and to

Explain the checklists -documenting the accounting system, Checklists or qu...

Checklists or questionnaires Audit firm will have a standard list of control questions. Audit staff can quickly ascertain which if any, are in operation by the client. There

What are financial crises in financial markets, What are financial crises i...

What are financial crises in financial markets? Financial crises: Financial crises are described as major disruptions in financial markets which are characterised by shar

Objectives of averaging, The two main objectives are: ...

The two main objectives are: To get at a single value: Measures of central value, by considering the mass of data in one single

Investment banker, The Role of Merchant Banker The issuer appoints the ...

The Role of Merchant Banker The issuer appoints the Merchant Banker (or Investment Banker) to undertake the issue activity. A Merchant Banker performs multiple functions during

Characteristics of warrants, Characteristics of Warrants As mentioned e...

Characteristics of Warrants As mentioned earlier, a warrant is a variant of a call option and gives the holder a certain right to purchase shares of the company at a predetermi

How to develop career strategy, Q. How to develop career strategy? in t...

Q. How to develop career strategy? in this step employees need to focus on developing the knowledge experience and skills necessary to market self to prospective organizations.

Explain to tr, TR has recently been promoted to his first management positi...

TR has recently been promoted to his first management position. In the past, he very much enjoyed working as part of a team, but is having some difficulty in adapting to his new ro

Prepare a report for the managing director, The Managing Director of your f...

The Managing Director of your firm is thinking aloud about an appropriate gearing level for the company: "The consultants I spoke to yesterday explained that some academic th

Explain about the audit risk, Audit risk Obtain understanding of ac...

Audit risk Obtain understanding of accounting and internal control systems. Sufficient to plan audit and develop effective audit approach. Professional judgement to

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