Question

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Homework Assignment 5 - Word aces Mailings Review View Add-ins Help Tell me what you want to do . Aa. .A .. = 21 9. AaBbccc Aabbcc AaBbc Aabbcc AaB T Normal 1 No Spac.. Heading 1 Heading 2 Title . E Paragraph Styles Homework Assignment 5: 1. What factors might impact an investor's willingness to take on risk? How might the level of risk aversion vary over time? Explain using examples. 5 points 2. Why do utility companies, fast food companies, and low-cost retailers generally have a lower standard deviation than many other firms? 3 points

Answer 1

question 1:

Factors that impact investors willingness to take risk are:
1. The time horizon of time investment.
2. The required rate of Return.
3. The expected rate of return.
4. The net worth of the investor.
5. The amount of risk capital available.
6. Investment experience of the investor.
7. Goals and objective of investment.
8. The standard deviation of the investment.

Risk aversion means not willing to take the risk. As the time horizon decreases the risk aversion increases.

As 20 year old is willing to take more risk for his retirement savings then compared to 60 years old person.
Hence 20 year old will invest in more risky assets like Equity.
This happens because the time horizon is big & risk tolerance level is high.

Question 2.
Standard deviation represents the volatility of the business.

Utility companies, fast food companies and low-cost retail companies have less standard deviation due to its lower the cyclic nature of the business.

lower the cyclic nature of the business cause low volatility. Hence lower standard deviation.