1. Show (give example) how an individual’s risk aversion can be estimated. 2. Explain why we can not aggregate individuals’ risk aversion measures.

Q: Why will the standard deviation not be a good measure of risk when returns are negatively skewed

A: The standard deviation of returns is a measure of the volatility of market returns and determines…

Q: What probable emotional reactions will have to an adverse financial outcome?

A: Emotions in stock market:- Money motivates stock market investors, and it's not uncommon for people…

Q: Explain how knowing the standard deviation of a security’s historical returns increases an…

A: The question is based on the concept, which establish relation between return and risk for…

Q: List which of the following statement(s) concerning risk are correct? I. Nondiversifiable risk is…

A: Risk is a factor which arises due to uncertain future factors. It can be generated through external…

Q: Explain the difference between systematic and unsystematic risk. Also explain why one of these types…

A: Financial markets are full of financial risks because these markets are related to the trade of…

Q: What is meant by risk? Why must it be managed properly?

A: Risk can be defined as the probability of an event occurring and having consequences. Standard…

Q: As a risk measure, Expected shortfall is more accurate and reliable in comparison to Value-at-Risk.…

A: This is to compare and find out which one is more better among expected shortfall and Value-at-Risk.…

Q: What happens to the SML graph when risk aversion increasesor decreases?

A: Risk Aversion: The ability of a human being to avoid the risk and eventually reducing losses that…

Q: Why is the variance (or standard deviation) used as a measure of risk? What are the advantages and…

A: Reasons of utilizing variance as a risk measure: While consider a lesser risk in investment, fewer…

Q: What is risk? What is the difference between systematic and unsystematic risk?

A: Risk: Risk can be defined as upcoming uncertainty about variation from anticipated earnings or…

Q: 1. What is a risk you aren't being paid to take?

A: Risks in simple words is a condition wherein a person ability is judged to take a decision which may…

Q: Define . Slope of SML and its relationship to risk aversion

A: Introduction: SML refers to security market line, it is a line indicating the relationship between…

Q: What are quantitative measurements versus non-quantitative measurements with respect to risk?

A: Risk is used to describe the probability or uncertainty related to a future event with a favorable…

Q: Indicate why you agree or disagree with justifications to the following statements: - “An investor…

A: Diversified portfolio- It refers to a portfolio of investments in which unsystematic risk or firm…

Q: Which of the following is not a category of risk response strategies? A. Acceptance. B.…

A: Risk mean the situations or circumstances which can lead to unfavourable or potential losses to the…

Q: Can the risk premium be negative after an investment is undertaken or before?

A: The risk premium is the extra risk-free return to require the risk of project acknowledgment. This…

Q: 16. helps the investor to determine the suitable types of investments. A. Risk taker B. Risk adverse…

A: Risk of an investment asset is the fluctuation possible on the return. The riskier the asset, higher…

Q: Some financial theorists consider the variance of the distribution of expected rates of return to be…

A: The variance of expected rates of returns describes a measure of the dispersion of real/actual…

Q: According to Peter Bernstein "When we take a risk, we are betting an outcome that will result from a…

A: Risks are the situations and conditions that have exposure to losses or damages. Risks expose…

Q: Which of the following statements is true for compensation of risk? a. Higher the risk, lower is the…

A: The Statement for compensation of risk is as under-

Q: With respect to an investor's utility function expressed as: U = E(r) –Ao², which of the following…

A: Utility Function = Er-12Aσ2 where A is -4, 0 and 4

Q: Basic Elements of Risk-Adjusted Returns?

A: Introduction: Risk adjusted return is a methodology for calculating and evaluating the returns on an…

Q: Do you believe on the principle-higher risk provides higher return? Can we achieve high return with…

A: Return is the reward which an investor will get by investing money in return and risk is the chance…

Q: Describe the relation between Risk and Returns that was introduced by Harry Markowitz

A: Modern portfolio theory, or MPT, is referred to as the method for portfolio management for reducing…

Q: What is the difference between systematic risk and unsystematic risk? Give an example of each.

A: Risk: The possibility that the actual outcome in a situation will differ from the expected outcome…

Q: In general, what is true of people's risk aversion for changes in income that are marginal (i.e.,…

A: Risk Aversion: It is the propensity of individuals to favor results with low vulnerability to those…

Q: Explain the Trade-Off between Risk and Reward?

A: The trade-off means to lose one thing to achieve another thing. For example An organization is…

Q: averse

A: Risk is involved in everything. Risks will be there right from the task that we do till the…

Q: How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable…

A: Total risk is measured by the standard deviation of returns; it has two elements non-diversifiable…

Q: George wants to calculate risk using risk assessment matrix ,should he assess for the worst credible…

A: Risk assessment matrix is a method used for finding the risk. This method prioritizes the risk by…

Q: Define the term risk?

A: Types of risk: Investment risk Market risk Inflation risk Business risk Liquidity risk

Q: identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing…

A: The interest coverage ratio is a debt ratio and profitability ratio used only to calculate how…

Q: What is standard deviation? What type of risk does it measure

A: Standard deviation measures the risk of an investment regarding how it will fluctuate or deviate…

Q: Risk is the uncertainty that matters because it affects people’s welfare. Briefly define and give…

A: Diversifiable Risk: Unsystematic Risk is also known as Diversifiable Risk and can be defined as a…

Q: _________ factors are conditions and other variables that in their present, or absence, as the case…

A: Less start with basic understanding. For auditing being made, audit needs to make plan for…

Q: 1. Define the components of holding period return. Can any of these components be negative? 2. How…

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: What is the relationship between risk and return?

A: Risk return relationship: The association among risk and return is recognized as the risk-return…

Q: Explain how NPV varies with risks. Show your argument using formulate for cases with different…

A: NPV or Net present value is the difference between the present value of cash inflows and cash…

Q: Why is it helpful to analyze risk in comparison to all of the other potential rewards?  Why is it…

A: Risk Analysis  It is done because it helps in the identification as well as in the assessment of…

Q: Risk means, in today's language, the probability of something bad happening or an unfortunate…

A: investors invest money in the market to earn some profit if they don't earn profit They will not…

Q: As a risk measure, Expected shortfall is more accurate and reliable in comparison to Value-at-Risk.…

A: Introduction : The expected shortfall (ES) can be understood as the risk measure—a notion employed…

Q: One of the characteristics of an insurable risk is that a risk needs to be determinable and…

A: An insurable risk class is a group of people or businesses with similar characteristics that are…

Q: For any given distribution of outcomes and probabilities, describe how preferences over risk affect…

A: An outcome is a potential result of an experiment in probability theory. The likelihood of an event…

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.