You Are Going to Invest All of Your Funds in One

question 38

Multiple Choice

You are going to invest all of your funds in one of three projects with the following distribution of possible returns: Project 1 Project 2
Standard Deviation 12% Standard Deviation 19.5%
Probability Return Probability Return
50% Chance 20% 30% Chance 30%
50% Chance -4% 40% Chance 10%
30% Chance -20%
Project 3
Standard Deviation 12%
Probability Return
10% Chance 30%
40% Chance 15%
40% Chance 10%
10% Chance -21%
If you are a risk-averse investor, which one should you choose?

• A) Project 1
• B) Project 2
• C) Project 3
• D) None of the above

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Definitions:

R&D Expenditures

Funds allocated for conducting research and development with the aim of innovation and improving products or services.

Sales

The exchange of a commodity for money; the action of selling something.

Inverted-U Theory

A hypothesis suggesting that there is an optimal level of some variable (such as stress or arousal) for performance, with both too little and too much leading to lower performance.

R&D Expenditures

Funds allocated by governments, institutions, or companies towards research and development activities.