Security a Will Yield a 6% Return in One Year

question 125

Multiple Choice

Security A will yield a 6% return in one year. Security B will either yield a 3% return or a 9% return in year with equal probability. Which is the better investment based on risk aversion and why?

• A)Security A, because it has a higher expected return with less risk.
• B)Security B, because it has a higher expected return with less risk.
• C)Security A, because it has an equivalent expected return with less risk.
• D)Security B, because it may potentially produce a 9% return.

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Definitions:

Sociability

The quality of being sociable, friendly, or willing to engage in social interactions.

Goodness Of Fit Model

A theoretical model that stresses the compatibility between an individual's temperament and their environment, asserting that a good fit leads to better adjustment.

Temperament Characteristics

Inherent personality traits that are noticeable from an early age and influence behavior and emotional responses.