Which of the following statements best describes risk aversion?
A) |
Given a choice between two assets of equal return, the investor will choose the asset with the least risk. | |
B) |
There is an indirect relationship between expected returns and expected risk. | |
C) |
The investor will always choose the asset with the least risk. | |
Risk aversion is best defined as: given a choice between two assets of equal return, the investor will choose the asset with the least risk. The investor will not always choose the asset with the least risk or the asset with the least risk and least return. As well, there is a positive, not indirect, relationship between risk and return. |