You Are a Risk-Averse Investor

question 5

Multiple Choice

You are a risk-averse investor.Portfolio A has E(r) = 12% and σ= 18%.Portfolio B has σ = 21%,and has end-of-year cash flows of either $84,000 or $144,000 with equal probability.At what price for portfolio B would you be indifferent between A and B?

• A) $100,000
• B) $101,786
• C) $84,000
• D) $121,000
• E) None of these

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Definitions:

Nonproductive Processing Time

Time during which no productive activity occurs, often due to maintenance, setup, or equipment downtime.

Bottleneck Operation

Process step that limits the overall output of an operation or system due to its lower capacity.

Avoidable Fixed Production Cost

Costs that can be eliminated if a particular product or segment is discontinued, without affecting other operations.

Split-off Point

The stage in a process manufacturing at which various products become separately identifiable and can be handled as distinct items.