This statement in the Practice Question 12.1 solution: "The assessment of aggregate risk would also depend on: ... the amount of available capital, as the more capital available, the more emphasis there should be on the risk to the return on that capital", isn't it more important if we have less available capital, as having low returns on the capital may make it insufficient thus insolvency may occur?
Hi Kimiko No, that isn't right. If the company has very little available capital then it can't afford to invest in risky assets as the probability of insolvency is too great. Therefor it cannot invest in assets with a higher expected return. Brest wishes Mark
