Suppose You Are an Investor with a Choice Between Three $\quad$

question 13

Essay

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.
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 40 percent
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Total return = 14 percent with probability 60 percent

Investment C: $\quad$ Total return = 10 percent with probability 60 percent
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Total return = 30 percent with probability 40 percent

a.Which investment provides the highest expected return? Show your work by calculating the expected return of all three investments.
b.Calculate the standard deviation of all three investments.
c.What type of investor might prefer investment A? Who might prefer investment B?

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Definitions:

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An exclusive group formed with specific membership rules, often kept confidential.

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