In this article we will discuss about the utility function of investors. Also learn about indifference curves. Utility Function and Risk Taking: Common investors will have three possible attitudes to undertake risky course of action: (i) An aversion to risk, (ii) A desire to take risk, and (iii) An indifference to risk. The following example will clarify the risk attitude [...]
In this article we will discuss about risk and return on investment. Risk and Required Return: The expected rate of return of an investment reflects the return an investor anticipates receiving from an investment. The required rate of return reflects the return an investor demands as compensation for postponing consumption and assuming risk. The required rate of return of an [...]
Learn how to calculate risk and return on portfolio of securities in a firm. Return on Portfolio: The expected return from a portfolio of two or more securities is equal to the weighted average of the expected returns from the individual securities. Σ(RP) = WA(RA) + WB(RB) Where, Σ(Rp) = Expected return from a portfolio of two securities WA = [...]