Denise purchased mutual fund A and Fred purchased mutual fund B. Fund A has a higher expected return and higher risk as compared to fund B. We can conclude that Denise may be risk-averse, risk-neutral, or risk-preferring whereas Fred must be risk-averse. Is this conclusion true?
Investment planning involves an estimate of the individual's tolerance for risk. There are several factors involved in estimating risk tolerance. They include the investment timeline/horizon, the investment goals, and the individual's risk attitude.
Answer and Explanation:
It would appear to be true from the information given that Denise has a higher risk tolerance than Fred does. Comparing the two of them we can say that Denise is risk-preferring compared to Fred. However, it may not be correct to generalize Fred's risk preferences based on the limited information included here.
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from Finance 305: Risk ManagementChapter 3 / Lesson 3