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    Relationship between risk aversion and investment decisions

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    "Risk aversion implies that only risk-free investments will be undertaken by corporate managers". Critically evaluate this statement (indicate whether you agree or disagree in your answer). Explain how the concept of risk aversion may relate to investment decision making.

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    The statement that risk aversion refers to corporate managers unwillingness to undertake investments that are not risk-free more closely describes risk -avoidance rather than risk-aversion. Risk aversion implies that when making investment decisions, corporate managers would prefer to take on less risky rather than more risk investments. On the other hand, risk avoidance refers to a tendency to avoid risk altogether.

    There is an inherent level of risk in investing. There is no guaranty that ...

    Solution Summary

    This question requires an explanation of risk aversion and investment decisions.