Question

Which of the following choices best completes the following statement? Explain. An investor with a higher degree of risk aversion, compared to one with a lower degree, will prefer investment portfolios

Answer 1

Answer:

(e) none of the above is true.

Explanation:

Note: The question appeared incomplete. Thus, a similar question has been attached for reference purpose and the question has been solved accordingly

A risk averse investor is defined as someone who is unwilling to assume risk in return for a higher return. As we know, higher the risk, higher would be the return.

An investor with higher degree of risk aversion i.e someone who is averse or against assuming any risk would not prefer a riskier portfolio.

Sharpe ratio depicts return which is earned above risk free rate of return, per unit of risk assumed.

A Risk averse investor would prefer investing at a risk free rate of return despite the return being less.

A risk averse investor would prefer investing in govt treasury bills or government treasury bonds which would offer low but assured return with nil risk.

Thus, the correct option is (e) none of the above is true.