Suppose You Are an Investor with a Choice Between Three

question 55

Multiple Choice

Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk.Which security has the least risk? Note: You can answer this question intuitively, without calculating the standard deviation.However, if you want to calculate the standard deviation, the equation is: Standard deviation = S = $$\left\{ p _ { 1 } \left( X _ { 1 } - E \right) ^ { 2 } + p _ { 2 } \left( X _ { 2 } - E \right) ^ { 2 } + \ldots + p _ { N } \left( X _ { N } - E \right) ^ { 2 } \right\} ^ { \frac { 1 } { 2 } }$$
Investment A: $\quad$ total return = 10 percent with probability 50 percent
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Total return = 20 percent with probability 50 percent

Investment B: $\quad$ total return = 12 percent with probability 50 percent
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ total return = 20 percent with probability 50 percent

Investment C: $\quad$ total return = 5 percent with probability 60 percent
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ total return = 25 percent with probability 40 percent

Investment D: $\quad$ total return = 5 percent with probability 60 percent
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ total return = 7 percent with probability 40 percent

• A)Investment A
• B)Investment B
• C)Investment C
• D)Investment D

---

Definitions:

College Professors

Academic professionals who teach, lecture, and conduct research in colleges or universities.

Wage

The fixed amount of money or compensation paid to an employee by an employer in exchange for work performed.

Lumber Prices

The cost or price of wood or timber, which can fluctuate based on factors like supply and demand, environmental regulations, and economic conditions.

Home Construction

The process of building residential structures, such as houses and apartments, often involving design, planning, and assembly of materials.