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Identify each as being consistent with risk averse, risk ne

Identify each as being consistent with risk averse, risk neutral or risk seeking behavior in investment project selection. Explain.

1. Larger risk premiums for riskier projects
2.Preference for smaller as opposed to larger, coefficients of variation
3. Valuing certain sums and expected risky sums of equal dollar amounts equally
4. Having an increasing marginal utility of money
5. Ignoring the risk levels of investment alternatives

Solution Preview

1. Risk averse: Larger premiums for riskier projects is a risk averse activity, which demands a higher risk premium as the project risk increases.

2. Risk averse: In this case, the investment ...

Solution Summary

Identify each as being consistent with risk averse, risk neutral or risk seeking behavior in investment project selection. Explain.

1. Larger risk premiums for riskier projects
2.Preference for smaller as opposed to larger, coefficients of variation
3. Valuing certain sums and expected risky sums of equal dollar amounts equally
4. Having an increasing marginal utility of money
5. Ignoring the risk levels of investment alternatives

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