Is it true or false that given two gambles, a risk averter will always choose the...
Is it true or false that given two gambles, a risk averter will always choose the one with the smaller variance, no matter the expected return?
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Homework Answers
The given statement is true
Variance or standard deviation is always a measure of the risk levels and this means that a risk avert person chooses lesser risk or one with less variance.
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Is it true or false that given two gambles, a risk averter will
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A consumer can choose between two gambles. The “sure thing” guaranteesadditional income (I) of $250,000. The “risky gamble” offers a 50 percent chance of winning $500,000 or a 50 percent chance of winning nothing. The consumer’sutility function is U(I) = 10ln[(I + 1000)/1000]. Calculate the consumer’sexpected utility and expected value of the gamble for each of the two gambles and use your results to comment on the consumers’ risk preferences.
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Which statement is TRUE? a) All of these statements are false b) The measure of risk...
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Which of the following statements is FALSE regarding the risk of a portfolio comprised of two...
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Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with...
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