Question

A typical investor is assumed to be:

uninformed.

a gambler

a single security holder.

risk averse.

risk neutral.

Answer #1

A typical investor is assumed to be Risk averse.

A risk averse investor is one, which would choose among two securities, the one which gives a lower level of risk exposure even though the expected return on both the securities is similar. Risk averse investors will not want to take fair gambles So, he is not a gambler. so option 1 is incorrect.

A risk averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks.

So, the correct option is option 4.

Investors are always assumed to rational and informed so option1 is incorrect and investors can hold more than one security , so he is not a single security holder and is also not risk neutral. Investors are assumed to be risk averse.

(True/False. Explain.) A risk averse investor will
prefer a well-diversified portfolio over a single asset
portfolio.

a) Derive in detail the type of risk premium required
by the risk averse investor
b) Hence, determine if the above result maximizes the
risk averse investor's expected utility.

How a risk neutral investor allocates her asset between a risk
free security and a risky asset. The risk-free return is 5% and the
return of the risky asset is 7% with a standard deviation of
4%.

Assume that a risk-averse investor who owns shares in Minta
Company decides to add shares of either Miller Ltd or Mistra Ltd to
create a two-security portfolio. The expected return and standard
deviation are the same for all three shares. The correlation of
returns between Minta and Miller is -0.06; while, the correlation
of returns between Minta and Mistra is +0.06.
Which of the following statements is/are true? Explain why.
(i) Portfolio risk is expected to decline more when the...

You are a risk-averse investor. Investment A has E(r) =12% and
standard deviation = 18%.
Investment B has standard deviation = 24% and has end of year
cash flows of either $84,000
or $144,000 with equal probability. At what price for Investment
B would you be indifferent
between A and B? Hint: think about individual security selection
statistic...not portfolio.

Consider a risk averse investor whose preferences satisfy
decreasing relative risk aversion. There are two types of assets: a
risky asset and a safe asset. Assume that the investor invests a
positive proportion of his total wealth in the risky asset. Does
the proportion of his total wealth invested in the risky asset
increase in his wealth? Explain your answer as precisely as
possible.

What type of security can minimize both price risk and
reinvestment risk for an investor with a fixed investment horizon?
Explain.

what type of security can minimize both price risk and reinvestment
risk for an investor with a fixed investment horizon?
explain.

What type of security can minimize both price risk and
reinvestment risk for an investor with a fixed investment horizon?
Explain.

You are a risk averse investor. You are willing to add an
investment with high volatility provided the correlation
coefficient of this investment with other stocks in the portfolio
is not less than +1.
True
False
10 points
The stock A has 25% standard deviation on its expected return
and the stock B has 25% standard deviation on its expected return.
The expected return for the portfolio of these two stocks will have
a standard deviation of 25%.
True...

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