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![In an experiment on risk aversion, a group of people were given the following
choice: A) Lose $100 with certainty, or B) 50% chance to win $50, 50% chance
to lose $200. An overwhelming majority chose option B. This can be best
explained by which of the following?
Option B has a smaller expected loss than option A.
Option B has an expected gain as opposed to certain loss with option A.
This behavior violates the Weak Axiom of Revealed Preference.
People have a greater aversion to loss than to risk.
This behavior is consistent with risk aversion with losses.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F56b6d3fe-4c24-430f-aacd-244eae346853%2Fc0088bc4-abd1-49e4-b860-a3ef860790e3%2Flt6rbuh_processed.jpeg&w=3840&q=75)
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- Investment may be regarded as high risky when selecting one : a. It has low standard deviation b. None of the option C. It has a high standard deviation d. It has higher average return e. It has lower average retumWhich of the following statement is incorrect? The expected cost of risk per participant will stay the same through pooling arrangements as the number of participants increases, all other factors equal. A pooling arrangement result in reduced risk (standard deviation) to the participants in the pool when losses are negatively correlated. In the special case where losses are perfectly positively correlated across participants, risk can be virtually eliminated with a very large number of participants in a pooling arrangement. All the answers are correct. Insurance distribution costs may include mailing costs.An analyst wanting to assess the downside risk of an alternative investment and is considering the Sortino ratio, value at risk (VaR) and standard deviation of returns. Which of these would be appropriate and why? Explain why one or more of the options above are correct and explain why, if any of the remaining options are incorrect.
- Which of the following statements correctly describe characteristics of a risk averse investor? Group of answer choices A. A risk-averse investor may be willing to give up some expected return in order to be exposed to a higher level of risk. B. Given a choice, a risk-averse investor will always choose the investment with the lower level of risk when deciding between two investments offering different levels of expected return. C. More than one of the other statements is correct. D. A risk-averse investor will demand compensation in the form of higher expected returns in order to take on investments with higher risk.A risk-loving person (select all that applies) Group of answer choices a) will never make an investment with a risk-free payoff. b) has a convex utility function of income. c) has a concave utility function of income. d) will always choose the alternative with the largest risk. e) has increasing marginal utility of income.Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.
- Given the indifference curves above, which of the following statements isCORRECT? A) The investor prefers portfolio A because it has a lower level of risk. B) The investor prefers portfolio B because it has the greatest expected return. C) The investor prefers portfolio E because it is on the indifference curve 2, which is higher than the indifference curve 1, where both portfolios A and B are situated. D) The investor does not prefer one portfolio from another as each portfolio lies on an indifferent curve.According to Peter Bernstein "When we take a risk, we are betting an outcome that will result from a decision we have made, though we do not know for certain what the outcome will be" Explain the quotation thoughtlyAccording to Peter Bernstein "When we take a risk, we are betting an outcome that will result from a decision we have made, though we do not know for certain what the outcome will be" Explain exactly why
- Do you believe on the principle-higher risk provides higher return? Can we achieve high return with no risk at all? Explain your answer.If an investor prefers investment with higher risk , regardless to the return then he is following a ________ strategy. a. risk-aware b. risk-neutral c. risk-averse d. risk-seekingThe empirical SML is too flat relative to what CAPM predicts. Researchers have focused on which two possible explanations?. I - Leverage aversion II - Lottery preference III - Myopic loss aversion IV - Risk aversion A. I and II B. I and III C. I and IV D. II and III E. II and IV
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