What is risk aversion?

Why is risk aversion so important to financial decision making?

Q9: Under what circumstances is each type of riskstand alone, corporate, and market most relevant?

P1:

a) What is the expected rate of return on the project?

What is the project's standard deviation of returns?

What is the project's coefficient of variation (CV) of returns?

What type of risk does the standard deviation and CV measure?

In what situation is this risk relevant?

P4A:

Suppose that the risk-free rate, RF, were 8 percent and the required rate of return on the market, R(R_M), were 14 percent.

Write out the Security Market Line (SML), and explain each term.

P7: Assume that HMA is evaluating the feasibility of building a new hospital in an area not currently served by the company. The company's analysts estimate a market beta for the hospital project of 1.1, which is somewhat higher than the 0.8 market beta of the company's average project. Financial forecasts for the new hospital indicate an expected rate of return on the equity portion of the investment of 20 percent. If the risk-free rate, RF, is 7 percent and the required rate of return on the market, R(R_M), is 12 percent, is the new hospital in the best interest of HMA's shareholders? Explain your answer.