When it is said an investor is risk averse, it means that the investor will
A) choose the portfolio with the highest rate of return
B) choose the portfolio with the smaller standard deviation
C) be willing to accept a fair bet
D) experience diminishing marginal utility.

Question

Quizplus · Accepted Answer

A risk-averse investor prefers to minimize the uncertainty or variability of returns when choosing an investment. Hence, such an investor would opt for a portfolio with a smaller standard deviation, as it represents a lower level of risk. A portfolio with a high rate of return may also have a high standard deviation, which may not be suitable for a risk-averse investor. Therefore, option B is the most suitable choice.

When It Is Said an Investor Is Risk Averse, It