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Question
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
| Probability | Return | Standard Deviation | Beta | Probability | Return | Standard Deviation | Beta | |
| 50% Chance | 22% | 12% | 1.1 | 30% Chance | 36% | 19.5% | 1.0 | |
| 50% Chance | -4% | 40% Chance | 10.5% | |||||
| 30% Chance | -20% |
PROJECT 3
| Probability | Return | Standard Deviation | Beta |
| 10% Chance | 28% | 12% | 1.2 |
| 70% Chance | 18% | ||
| 20% Chance | -8% |
If you are a risk averse investor, which one should you choose?
A) Project 1
B) Project 2
C) Project 3
D) Either Project 1 or Project 2 because they have the same expected return
Answer
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