What is Risk Aversion?

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Risk aversion is the tendency to avoid the risk.

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Risk averse investors choose the preservation of invested capital over the higher return.

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Understand risk aversion with an example.

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You went to a bank for investing a good amount.

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Banker gives you two options for your investment.

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You will get a 5% sure shot return on investment at the end of maturity

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You would get a 12% return on investment but without any surety at the maturity.

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Now which option you would choose?

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If you are with the first option, then you are risk averse investor.

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If you go for the second option, then you are an optimistic investor.

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The understanding of this little thing can create fortune for you.

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