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Chapter 4: Q1DQ (page 436)

If corporate managers are risk-averse, does this mean they will not take risks? Explain.

Short Answer

Expert verified

The risk-averse managers wanted to opt for higher risk investment only when there are higher returns.

Step by step solution

01

Definition of risk-averse

Risk-averse is defined as an investor or an individual who chooses the safety of capital over the potential for returns that is higher than the average returns.

02

Risk-averse corporate managers

Corporate managers who are risk-averse are not unwilling to take the risks, but they require a higher return from the investment which comes with high risk. They need an extra premium or compensation for bearing higher risk.

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