Principles of Managerial Finance Fin 419 Essay

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FIN 419 Principles of Managerial Finance NAME FIN 419 DATE TEACHERS NAME Risk Preferences (P5-3) Managerial Finance/Risk Indifferent Managerial finance is the evaluation of different techniques used to decide externally and internally effects of the business. According to "Business Dictionary" (2013), " Managerial finance takes into consideration how to improve financial techniques to better the company and where changes can be made to prevent loss” (para. 1). If Sharon were risk indifferent she would choose both X and Y investments due to their higher earnings compared to the 12% needed profit. The attitude toward risk in which no change in return would be required for an increase in risk Risk Averse/ Risk Seeking/ Risk Preference Risk adverse is a description of an investor who, when faced with two investments with a similar expected return (but different risks), will prefer the one with the lower risk ("Investopedia", 2013). In the event she was a risk averse, Sharon would choose investment X because it has the maximum yield with minimum risk. The attitude toward risk in which an increased return would be required for an increase in risk. Risk seeking are those investors seeking high reward by investing in higher risk items. In case she was risk seeking, Sharon would pick both Y and Z investments because they have got a greater risk with no greater yield. The attitude toward risk in which a decreased return would be accepted for an increase in risk. Most managers are risk-averse; for a given increase in risk, they require an increase in return. Financial managers tend to be more of a risk averse then the others. The investment preferred would be investment X. The X investment offers the boost in yield for a boost in risk. Risk Analysis (P5-4) Rate of Return The range of the rates is
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