Question

Risk aversion of 6 to 8 represent low degree risk aversion and a high-risk tolerance. (a)...

Risk aversion of 6 to 8 represent low degree risk aversion and a high-risk tolerance.

(a) TRUE (b) FALSE

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Answer #1

False

Risk aversion refers to those investor who doesn't take much risk and preserve their capital instead of investing it in risky securities, while thr risk tolerant investor refers to those investor who invest in risk securities by taking high risks.

Ideal Risk aversion coefficient lies between 2 to 4, while in this case risk aversion coefficient of 6 to 8 shows investor is highly risk averse and would try to preserve the capital by not investing in risky assets.

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