Chapter 5

Question 1

Appetite for risk

Answer 1

the extent that you are willing to take on risk

Question 2

what is risk aversion a measurement of?

Answer 2

appetite for risk

Question 3

definition - the variation in an outcome

Answer 3

risk

Question 4

definition - the inability to predict an outcome

Answer 4

uncertainty

Question 5

risk avoidance
risk reduction
risk acceptance
risk transfer

Answer 5

not going ahead
taking action to prevent risk
doing nothing and proceeding
taking out liability

Question 6

risk averse attitude

Answer 6

choose a more certain, less risky option - even with a possibly higher return

Question 7

risk neutral attitude

Answer 7

choose an investment according to its potential return, irrespective of risk

Question 8

risk seeking attitude

Answer 8

choose an investment on the basis of it offering higher levels of risk, even if the expected return is lower than an alternative, risk-free investment with a higher expected return

Question 9

what is gross risk a function of

Answer 9

potential loss + Po of occurance

Question 10

pure risk vs speculative risk

Answer 10

something will go wrong vs something could go better than expected