Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
Question
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Chapter 6, Problem 1PS
Summary Introduction

To select: The statement which completes the sentence that an investor with higher degree of risk aversion compared to the lower degree of aversion.

Introduction : The risk aversion investors are used to reduce the risk of the portfolios and it can also reduce the risk completely. The risk-aversion investors can avoid the default risk by selecting the government guarantee securities.

Expert Solution & Answer
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Answer to Problem 1PS

The correct option is (e).

Explanation of Solution

Given information : The investor with higher degree of risk aversion is compared with lower degree of risk aversion.

The investments which has low standard deviation has low risk therefore investors includes the investments with the value of low standard deviation.

The analysis of the risk return −trade off is called as sharpe ratio but the investor with risk averse do not ready to take any kind of risk on their portfolio. Therefore sharpe ratio of the risky portfolios is low.

The rationale investor always required the high sharpe ratio for his portfolio and to obtain that he will chose only treasury bond and T-bills investments for investment alternatives.

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