Based on the Information Given Below, Which of the Investments $\sigma$

question 20

Multiple Choice

Based on the information given below, which of the investments would be considered best based on its risk and return relationship? Assume all investors are risk-averse and the investments will be held in isolation, not in a portfolio.

• A) D, because its total risk is lowest.
• B) E, because its coefficient of variation is lowest.
• C) F, because its standard deviation, \(\sigma\), is highest.
• D) E and F, because they have the same expected return,.
• E) None of the above.

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Definitions:

Predetermined Overhead Rate

This rate is calculated before the period begins and is used to apply manufacturing overhead costs to products based on a consistent formula.

Fixed Manufacturing Overhead

Costs in manufacturing that do not vary with the level of production, including factory rent, salaries of permanent staff, and equipment depreciation.

Machine-Hours

A measure of the amount of time machines are operated in the manufacturing process, used as a basis for allocating costs.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a selected activity base such as labor hours or machine hours.