You Are Going to Invest All of Your Funds in One

question 74

Multiple Choice

You are going to invest all of your funds in one of three projects with the following distribution of possible returns:
Project 3
Standard Deviation 12%
If you are a risk-averse investor,which one should you choose?

• A)Project 1
• B)Project 2
• C)Project 3

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Definitions:

Effective Interest Rate

This is the actual return on an investment, taking into account the effect of compounding interest as opposed to the nominal rate.

Bond Issue Costs

Expenses associated with the issuance of bonds, including legal, accounting, underwriting fees, and other costs that are often amortized over the life of the bond.

IFRS

International Financial Reporting Standards; a set of accounting standards developed by the International Accounting Standards Board (IASB) aiming for global consistency in financial reporting.

Maturity Value

The amount of money an investment will earn and pay out at the end of its life, including the initial principal and all accumulated interest.