Question

People differ with regard to their willingness to bear risks. however, if two stocks have the same expected rate of return, then most individuals would prefer the less risky to the more risky stock. this is called risk aversion. true or false?

Answer 1

True.

Most of the investors are risk averse. Individual who is risk averse, has tendencies of avoiding additional risk and will prefer less risk for the same expected return. Unless he will receive additional compensation if he assume that risk. He will demand higher rates of return when he take higher risk.