Which of the Following Is TRUE of Risk Aversion

question 16

Multiple Choice

Which of the following is TRUE of risk aversion?

• A)Greater risk aversion results in lower required returns for each level of risk.
• B)A reduction in risk aversion causes the required return for each level of risk to increase.
• C)In general,widely shared expectations of hard times ahead tend to cause investors to become less risk averse.
• D)Changes in risk aversion,and therefore shifts in the SML,result from changing preferences of investors.

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Definitions:

Retained Earnings

The portion of net income that is kept by a company rather than distributed to its shareholders as dividends, used for investment or paying off debt.

Social Insurance Contributions

Payments made to social security systems by employers, employees, or the self-employed, used to fund public programs such as pensions, unemployment benefits, and health care.

Transfer Payment

Payments made by the government to individuals for which no good or service is provided in return, such as welfare benefits.

Capital Equipment

Assets used by businesses to produce goods and services, such as machinery, tools, and buildings.