Which of the Following Investments Is Clearly Preferred to the Others

question 94

Multiple Choice

Which of the following investments is clearly preferred to the others for an investor who is not holding a well-diversified portfolio?

• A) Investment A
• B) Investment B
• C) Investment C
• D) Cannot be determined without information regarding the risk-free rate of return.

---

Definitions:

Absorption Costing

A method of inventory costing that includes all manufacturing costs, both variable and fixed, in the cost of a product.

Idle Capacity

The available but unused capacity of a company to produce goods or services without incurring additional fixed costs.

Absorption Costing

A method of inventory costing in which all costs of production (both variable and fixed) are treated as product costs.

Variable Costing

Variable Costing is an accounting method that only allocates variable costs to inventory and cost of goods sold, excluding fixed manufacturing overhead from inventory valuation.