Question

Somebody who is naïve regarding risk and return would likely exhibit behavior that is:

Group of answer choices

risk seeking

risk neutral

risk ignorant

risk averse

Answer 1

Sol:

Somebody who is naive regarding risk and return would likely exhibit behavior that is:
Risk ignorant

Naive used to describe someone who lacks rational life understanding, experience, judgment, as well as a general failure to behave according to what a similar person should demonstrate. Naive people are often ignorant and very trusting of others people around them that their natural innocence results in them getting cheated.

When comes to risk and return on a investment, a naive person is likely to be depend upon understanding, experience and judgment of other people irrespectively of the nature of the investment. He will be ignorant about the risk/reward ratio pertaining to an investment and will just rely on other people thought process, ignoring the fact that risk/reward appetite vary from person to person. A low risk, low return investment style may suit a particular naive person, however investment in higher risk/higher reward instrument based on a person who deals in high risk, high return instrument may lead to loss to a naive person which could have been averse if he would not be risk ignorant.