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Question
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 =
Investment A: total return = 10 percent with probability 50 percent
total return = 20 percent with probability 50 percent
Investment B: total return = 12 percent with probability 50 percent
total return = 20 percent with probability 50 percent
Investment C: total return = 5 percent with probability 60 percent
total return = 25 percent with probability 40 percent
Investment D: total return = 5 percent with probability 60 percent
total return = 7 percent with probability 40 percent
a. Investment A
b. Investment B
c. Investment C
d. Investment D
Answer
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