ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Most investors are risk averse, meaning they will always be willing to sacrifice higher return if they can avoid risk. Rational investor’s are motivated to purchase an asset because of its expected returns. Business risk is the risk associated with the amount of debt financing used by a firm.

Detailed explanation-2: -Risk aversion is the tendency to avoid risk. The term risk-averse describes the investor who chooses the preservation of capital over the potential for a higher-than-average return. In investing, risk equals price volatility.

Detailed explanation-3: -The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

Detailed explanation-4: -Risk Neutral Pricing and Measures Individual investors are almost always risk averse, meaning that they have a mindset where they exhibit more fear over losing money than the amount of eagerness they exhibit over making money.

Detailed explanation-5: -Stock prices move as corporate earnings prospects change but they also move as investors change their aversion to risk. Aversion to risk gives rise to a risk premium, which consists of an expected extra return that investors require to be compensated for the risk of holding stocks.