Investments a and B Both Offer an Expected Rate of Return

question 44

Multiple Choice

Investments A and B both offer an expected rate of return of 12. The standard deviation of A is 30 percent and that of B is 20 percent. If an investor wishes to invest in either A or B, then the investor should

• A)prefer A to B.
• B)prefer B to A.
• C)prefer a portfolio including both A and B.
• D)The answer cannot be determined without knowing investors' risk preferences.

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Definitions:

Economic Development

The method through which a country enhances the financial, governmental, and societal prosperity of its citizens.

World Bank

A worldwide banking entity that issues loans and grants to assist capital projects in impoverished countries through their governments.

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The central banking system of the United States, responsible for implementing monetary policy, supervising banks, and providing financial services to depository institutions, the government, and the public.

Microfinance Loans

Small loans provided to individuals or groups in impoverished areas to spur economic development.