Portfolio theory assumes that investors are risk-averse. This means that investors:
A) cannot be induced to make risky investments.
B) prefer more risk to less for a given return.
C) will accept some risk, but not unnecessary risk.
D) All of the above are true.

Question

Quizplus · Accepted Answer

Portfolio theory assumes that investors will accept some risk, but not unnecessary risk. This means investors are willing to take on risk but only if they are compensated with a higher return. Investors are typically risk-averse in the sense that they prefer a lower level of risk for a given level of return, but they may be willing to take on additional risk if the potential rewards are high enough. Therefore, choice C is the most accurate answer.

Portfolio Theory Assumes That Investors Are Risk-Averse