Two Assets Have the Following Expected Returns and Standard Deviations

question 72

Multiple Choice

Two assets have the following expected returns and standard deviations when the risk-free rate is 5%:
Asset A E(r_A) = 10% σ_A = 20%
Asset B E(r_B) = 15% σ_B = 27%
An investor with a risk aversion of A = 3 would find that ________ on a risk-return basis.

• A) only asset A is acceptable
• B) only asset B is acceptable
• C) neither asset A nor asset B is acceptable
• D) both asset A and asset B are acceptable

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Definitions:

Quantity Demanded

The cumulative quantity of a product or service that buyers are ready and capable of buying at a certain price within a given timeframe.

Surplus

The situation where the quantity of a good or service supplied exceeds the quantity demanded, often resulting in a decrease in price.

Price

The amount of money required to purchase a good or service, often determined by the interaction of supply and demand.

Units

The basic measure or quantity of something, used as a standard for expressing and comparing amounts.