When Considering Different Investments, a Risk-Averse Investor Is Most Likely

question 45

Multiple Choice

When considering different investments, a risk-averse investor is most likely to focus on purchasing:

• A) investments with the greatest spread in the expected rate of return.
• B) investments that offer the lowest standard deviation in the investments' expected rates of return for any given expected rate of return.
• C) only risk-free investments.
• D) investments with the lowest risk premium, regardless of the expected rate of return.

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Definitions:

Marginal Products

The extra output that is produced by using one more unit of a particular input, holding all other inputs constant.

Separating Equilibrium

Separating equilibrium occurs in a game or market when different types of participants choose distinctly different strategies or products, revealing their type.

Pooling Equilibrium

A situation in a market where all agents, regardless of their type or quality, provide the same signal, making it impossible to distinguish between them based on that signal alone.

Microeconomics

The branch of economics that studies individual agents and markets, decision-making processes, and the outcomes of interactions.