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

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Definitions:

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An individual's ability or expertise in a specific area that contributes to their effectiveness in personal or professional settings.

Delegatee's Performance

The execution of delegated tasks or duties by the appointed individual or entity.

Special Trust

A fiduciary relationship or arrangement in which one party holds property or assets for the benefit of another party, marked by a particular purpose or objective.

Intended Beneficiary

A person or entity that is specifically designated to benefit from a contract, trust, or estate, even though they are not a direct party to the agreement.