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If Investors Are Risk Averse and Hold Only One Stock

question 97

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If investors are risk averse and hold only one stock, we can conclude that the required rate of return on a stock whose standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10.However, if stocks are held in portfolios, it is possible that the required return could be higher on the stock with the low standard deviation.

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Definitions:

Epinephrine

Epinephrine, also known as adrenaline, is a hormone and neurotransmitter involved in the body's fight-or-flight response, increasing heart rate, muscle strength, blood pressure, and sugar metabolism.

Bacterial Infection

A harmful invasion into the body by bacteria, leading to illness, which can range from mild to life-threatening.

Lymphocyte Activity

Refers to the actions and responses of lymphocytes, a type of white blood cell, in the immune system to defend the body against pathogens.

Elevated Epinephrine Levels

Higher than normal amounts of epinephrine, a hormone and neurotransmitter involved in the body's fight-or-flight response.

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