1. Which of the followingstatements is false?a. Risk neutrality means that aninvestor are not looking at risk inan investment, just returns.b. Risk aversion means that aninvestor prefer a fixed amountwith certainty over a largeramount with risk.c. Risk seeking means that aninvestor is willing to accept thehigher risk that goes with higherpayoff.d. All of the above are false.e. None of the above are false.

When making investments the concerned investor is looking for a desired rate of return. Risks are…

Answered: 1. Which of the following statements is…

1. Which of the following statements is false? a. Risk neutrality means that an investor are not looking at risk in an investment, just returns.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

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.

Question

1. Which of the following
statements is false?
a. Risk neutrality means that an
investor are not looking at risk in
an investment, just returns.
b. Risk aversion means that an
investor prefer a fixed amount
with certainty over a larger
amount with risk.
c. Risk seeking means that an
investor is willing to accept the
higher risk that goes with higher
payoff.
d. All of the above are false.
e. None of the above are false.

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List which of the following statement(s) concerning risk are correct? 1. Nondiversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for nondiversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.
Which one of the following statements is correct concerning unsystematic risk? An investor is rewarded for assuming unsystematic risk. Beta measures the level of unsystematic risk inherent in an individual security. Eliminating unsystematic risk is the responsibility of the individual investor. Standard deviation is a measure of unsystematic risk. Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk. оо O O
In a few sentences, answer the following question as completely as you can. We routinely assume that investors are “risk-averse return-seekers” (i.e., they like returns and dislike risk). If so, why do we contend that only systematic risk is important? Alternatively, why is total risk, on its own, not important to investors?
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 criticism of the CAPM is that it: А. utilizes too many factors. В. ignores the risk-free return C. ignores the return on the market portfolio. D. requires a single measure of systematic risk.
The unbiased expectations theory assumes investors are: А. Risk seeking В. Risk neutral С. Risk averse D. None of the above
Which is least likely? A. For the risk-seeking manager, no change in return would be required for an increase in risk. B. For the risk-averse manager, required return would decrease for an increase in risk. C. For the risk-indifferent manager, no change in return would be required for an increase in risk. D. A and B
An investment with a high return is likely to be high riskA. TrueB. False
When using the binomial model, you can't make decisions about investment using only the risk-neutral measure because O all investments have the same expected rate of return in the risk-neutral measure. all investors are risk-neutral in the risk-neutral measure. all information about risk was removed from the model by switching from physical to risk-neutral measure. there are undue assumptions made in the construction of the risk-neutral measure. None of the other responses.
When describing the attitude of investors towrds risk, which statement is correct? A.Investors may behave as though they are risk seekers for small investments B.For a risk-averse investor, the standard deviation of the return distribution is a relevant measure of risk C.Investors behave as though they are risk averse for investments of significant size D.All of the above
1) Which statement best describes the concept of risk? A) Under a situation of risk, future outcomes can be expected to have only one value. B) Under risk situations there can only be one possible outcome, but with array of potential returns. C) Under uncertain situations, future outcomes can be expected to have only one value. D) Risk describes a situation where there is not just one possible outcome, but an array of potential returns.
Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a lower alpha than security B, which statement below is TRUE: Group of answer choices Security A has a lower expected return than security B Security A has a lower abnormal return than security B Security A has lower total risk than security B Security A has a lower total return than security B

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