Question

Which of the following statements is (are) TRUE?

I) Risk-aversion investors accept investments that are fair games

II) Risk-neutral investors judge investments only by expected returns – risk is not relevant

III) Risk-averse and risk loving investors consider both an investment’s risk and return

IV) Highly risk-averse investors would still allocate a small portion of their savings to stocks

Choose from the options below:

a) II only

b) I only

c) II,III and IV only

d) I and II only

e) II, III only

Answer 1

(I) was not correct as risk aversion investors reject investments that are fair games

(II) was correct as risk neutral investors judge investments only by expected returns and risk is not relevant for them.

(III) Risk lovers and risk averse investors consider both an investment's risk and return was correct.

(IV) Highly risk averse investors would still allocate a small portion of their savings to stocks was not correct.

so option (e) was correct.