Which of the following statements is(are) true?
I) Risk-averse investors reject investments that are fair games.
II) Risk-neutral investors judge risky investments only by the expected returns.
III) Risk-averse investors judge investments only by their riskiness.
IV) Risk-loving investors will not engage in fair games.

Question

Which of the following statements is(are) true?
 I) Risk-averse investors reject investments that are fair games.
II) Risk-neutral investors judge risky investments only by the expected returns.
III) Risk-averse investors judge investments only by their riskiness.
IV) Risk-loving investors will not engage in fair games.

Quizplus · Accepted Answer

I) Risk-averse investors indeed reject investments that are fair games because they prefer certainty and are unwilling to accept an investment where the expected return is equal to the risk-free rate. II) Risk-neutral investors are indifferent to risk; they care only about the expected returns and not the risk associated with those returns. III) is incorrect because risk-averse investors consider both risk and return, not just risk. IV) is incorrect because risk-loving investors are attracted to risk and may engage in fair games for the possibility of higher returns.

Which of the Following Statements Is(are) True