IInvestments a and B Both Offer an Expected Rate of Return

question 82

Multiple Choice

IInvestments 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:

Evaluate

The process of examining something carefully to judge its value or worth, often used in financial and analytical contexts.

Superscript

A character, such as a number or letter, that is set slightly above the normal line of type, often used in mathematical expressions to denote powers or indices.

Solve For R

A common phrase in finance and mathematics referring to the process of finding the rate of interest or return.

Nearest Hundredth

A term referring to rounding a number to the second decimal place to make it closer to the exact value by hundredths.