Risk Profiles for Investors
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Given an individual risk profile, be it an aversion to risk or a high tolerance for risk; and, the current relatively low level of interest rates would he invest today in an asset, like a US Government Bond, that has a long term fixed cash flow associated with it? Remember to consider the investment time frame and investment purpose when setting forth his investment opinion.
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Solution Summary
Understanding the level of risk versus the potential return for each risk level
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Essentially there are three types of investors:
* The risk averse investor is highly allergic to taking risks, and will seek minimal risk from an investment standpoint;
* the moderate risk taker is willing to incur some risk for a higher level of return, but that is a measured form of risk based upon as much factual data as possible, and is based in proven investment types of opportunities;
* The true risk taker is willing (and eager) to take on additional risk, especially given the chance for a high reward. This investor may ignore the fact that with high risk comes a semblance of the potential to also "lose big". So this type of investor must really pay attention to the EXPECTED rate of return versus the ACTUAL rate of return realized from the investment.
Now, with respect to interest rates, they are really a function of the economy and ...
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