Question

Give an example of a person with high risk tolerance and limited risk capacity.

Answer 1

Risk tolerance is individual’s attitude about taking risk. Risk capacity is the financial ability to be able to do so-based on assets, income, liabilities, time horizon for various goals, & number of dependents.

For example: A 50 year old man might be willing to accept risk but he might have huge liabilities, have dependents, have huge expenses and not much saved thus he will have high risk tolerance but limited risk capacity