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Specify how risk aversion influences required rates of return?

Specify how risk aversion influences required rates of return?

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The investors demand a risk premium in return for the risk taken by them by investing in securities. When they invest in highly risky securities, they demand a higher rate of return as compensation. When they invest in less risky securities, they demand a lower rate of return.

So,similarly a risk averse investor invests in securities and demands a higher rate of return as they do not like risk. A risk loving investor likes risk, so would not mind taking risks and investing in risky securities hence they demand a lower rate of return. Risk averse investors require a higher return as compared to a marginal investor.

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