FIN 419 Week 2 Individual Assignment - Assignments from the Readings

Apr 24th, 2015
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FIN 419 Week 2 Individual Assignment - Assignments from the Readings

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Week 2 - Assignments from the ReadingsWeek 2 - Assignments from the ReadingsChapter 5: Problem 5.3a. If Sharon were risk-indifferent, which investments would she select? Explain why.If Sharon were risk-indifferent, she would select Investments X and Y since they have higher returns than that of the 12% required return. "The attitude toward risk in which no change in return would be required for an increase in risk" (Gitman, 2006, p. 230).b. If she were risk-averse, which investments would she select? Why?If Sharon were risk-averse, she would select Investment X since it has the highest return and the lowest risk. "The attitude toward risk in which an increased return would be required for an increase in risk" (Gitman, 2006, p. 230).c. If she were risk-seeking, which investments would she select? Why?If Sharon were risk-seeking, she would select Investment Y and Z since they have a higher risk without an increased return. "The attitude toward risk in which a decreased return would be accepted for an increase in risk" (Gitman, 2006, p. 230).d. Given the traditional risk preference behavior exhibited by financial managers, which investment would be preferred? Why?"Most managers are risk-averse; for a given increase in risk, they require an increase in return" (Gitman, 2006, p. 230). Since most financial managers are risk-averse, the preferred investment is Investment X. Investment X provides the increase in return for an increase in risk. Chapter 5: Problem 5.

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