1.Compare the following risk preferences: (a) risk-averse, (b) risk-indifferent, and (c) risk-seeking. Which is most common among financial managers?
2.Explain how the range is used in sensitivity analysis.© BrainMass Inc. brainmass.com December 15, 2020, 3:24 pm ad1c9bdddf
1. Risk averse preference is indicative of one who typically does not like risk. This type of person will likely accept an investment option with a lower return if the higher return option is riskier. A risk indifferent individual doesn't care either way regarding the higher risk of the same options as presented in the formal example. An investmnet option with a higher risk would be considered by this individual. A risk seeking individual is, as the name implies, is one who not only would consider a higher risk ...
The solution compares risk preferences, the range used in sensitivity analysis, and explains the variables in the CAPM and describes the security market line in the SML.