Risk aversion implies that
A) individuals will not take on risk.
B) investors must be compensated for about half of the risk they take on.
C) investors must be compensated for the risk they take on.
D) None of the above.

Question

Quizplus · Accepted Answer

Risk aversion refers to an individual's preference to avoid risk. In the context of investing, risk-averse investors need to be compensated for the risk they take on, which means they require a higher expected return for investments that involve higher risk. Therefore, option C is the correct answer. Option A is incorrect because risk aversion does not mean that individuals will not take on risk at all. Option B is incorrect as the statement that investors need to be compensated for about half of the risk they take on is not accurate. Option D is incorrect because one of the options is correct, making it not "none of the above."

Risk Aversion Implies That