Risk Averse Situation: Investing in an Economy
Not what you're looking for?
Consider the following two, completely separate, economies. The expected return and volatility of all stocks in both economies is the same.
In the first economy, all stocks move together in good times all prices rise together and in bad times they all fall together.
In the second economy, stock returns are independent....one stock increasing in price has no effect on the prices of other stocks.
Assuming you are risk-averse and you could choose one of the two economies in which to invest, which one would you choose? Explain.
Purchase this Solution
Solution Summary
This solution discusses which economy to invest in when put in a risk averse situation.
Solution Preview
If I was risk averse, and the overall stability of the two economies were essentially the same, I would definitely invest in the second economy. Why? Most financial experts always state (especially in today's volatile world), diversification, diversification, diversification. And, since no one really knows definitely knows when a bull or bear market will either start or stop and for what type of stock(s) they will affect, diversification is key. Let me say this as ...
Purchase this Solution
Free BrainMass Quizzes
Motivation
This tests some key elements of major motivation theories.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.