If a company is risk adverse, will this status increase or decrease its return on investment? Why or why not?
How can statistics be used to calculate the financial risk of a single project or of a multitude of projects?
Yes. If the company is risk adverse, its return on investment will decrease. The company identifies the various investment options like bonds, stock, real estate etc. Each investment option mentioned above has its own risk and return quotient. The greater the risk taken, the higher is the expected return.
A risk adverse company would always like to invest in schemes/options which carry minimum risk. For example, in the extreme case, the company might like to keep cash in hand/bank so that there is minimum risk (except for robbery or bankruptcy of bank) and the return on the same will be zero or sometimes negative due to various charges levied by the bank or handling cost.
In another extreme case, the company may invest in 100% equity schemes where the risks are high because there are lots of ...
The 550-word solution presents a thorough explanation of risk adversity for various types of investments. it also discusses company attitudes towards risk by classifying companies in terms of risk, and then discussing the types of investment that match the level of risk.