Author Archives: Michael Rawson

Taking Risk into Account in the Active vs. Passive Dabate By Michael Rawson CFA

How much would you pay for an investment that has a 50% probability to pay $1,000,000 and a 50% probability to pay nothing if you could enter the investment only one time? While the expected value of this payoff is $500,000, most people would not pay anywhere near that amount to enter this investment. The probability of the zero payoff is just too high. The more risk averse you are, …

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