Learn Before
Wealth and Situational Risk Aversion
High-Risk, High-Return Nature of Stock Investments
Wealth as a Prerequisite for Bearing Investment Risk
To benefit from the high potential returns of risky assets like equities, households must possess sufficient wealth. This wealth provides the financial capacity to absorb potential investment losses, a necessary condition for undertaking the risks associated with high-return investments.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Asset Choice as a Reflection of Wealth-Based Risk Aversion
Lower Average Investment Returns for the Less Wealthy Due to Risk Aversion
Wealthy Individuals' Use of Leverage to Amplify Returns
Wealth as a Prerequisite for Bearing Investment Risk
Impact of Wealth-Based Risk Aversion on Major Life Decisions
Situational Risk Aversion's Role in Perpetuating Wealth Inequality
Wealth as a Prerequisite for Bearing Investment Risk
An investor is comparing two financial assets. Asset X has historically shown an average annual gain of 15%, but its value has also experienced drops of up to 30% in a single year. Asset Y has consistently provided an annual gain of 2%, and its value has never decreased by more than 1% in a year. Based on this information, what is the most accurate conclusion about the relationship between potential gains and potential losses for these assets?
Investment Strategy Evaluation
Evaluating the Nature of Stock Market Investing
An investment that offers the possibility of very high financial gains over a short period is generally considered to have a low level of risk.
Explaining the Risk-Return Tradeoff
Match each investment scenario with its most likely risk and return profile.
In finance, the principle that an investment with the potential for greater financial gains also carries a greater potential for financial loss is known as the - tradeoff.
Arrange the following financial assets in order from the lowest typical risk and return potential to the highest typical risk and return potential.
Asset Allocation and Time Horizon
A well-established company announces it is discontinuing its stable, profitable product line to invest all its resources into developing a new, experimental technology that could be revolutionary if successful. How does this strategic shift most likely alter the characteristics of the company's stock as an investment?