Denise purchased mutual fund A and Fred purchased mutual fund B. Fund A has a higher expected...

Question:

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 Risk:

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.


Learn more about this topic:

Loading...
Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
4.7K

Related to this Question

Explore our homework questions and answers library