What is the equivalent of security?

The equivalent of security is a number representing an amount that someone would accept as a guaranteed payment rather than instead of choosing a higher payment that is not guaranteed. The amount will vary depending on how the person is the appropriate risk. The concept can be used both in general statistics and in a specific context of financial investment. If the team usually plays well, the child can use this option. The parent can then offer an increase in the guaranteed option to $ 15. A child may decide to make a better choice than risk. In this situation, the child's equivalent is $ 15.

In itself, the equivalent of security is simply a number and few for economist or investment analysts. Where it becomes more useful, the graph is rendered, where the equivalent of security is monitored with a variable. These two variables will usually be the amount of money at stake and potential winnings or return. The graph can be modified depending on how risky it is. Such a chart and accompanying analysis can be usedtangent for the company with regard to bond or shares. It will provide them with a certain insight into the amount of potential revenues that would have to offer to convince a special part of investors to switch from risk -free savings.

One potential problem with the equivalent of security is that different people have different attitudes to risk. The equivalent of the security will be lower for a person's risk, as it is satisfied with a relatively low guaranteed and risks. For some less worried risk, the equivalent of security will be higher because it will require a higher warranty to be convinced to give up the possibility of higher return.

Examination of this concept can be for analysts frustrating and illuminating exercises. This is because it can reveal how most people have an illogical approach to risk. For example, many people regularly play lottery, although the combination of available prizes and chances of winning means that worse play will end statistically. Most people at the same timeIt concludes insurance contracts, although the combination of premiums charged, the amount of coverage and the probability of claiming means that statistically people who are withdrawing insurance will end worse.