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FINANCE QUESTION If you are an average risk taker which of the following investments would you...

FINANCE QUESTION

  1. If you are an average risk taker which of the following investments would you choose? Explain why?

Investment

Expected Return

Standard Deviation

Stock A

5.0%

3.0%

Stock B

17%

10%

Stock C

11%

6.0%
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Answer #1

An average risk taker will choose,

Stock C

Explanation:

An average risk taker will take risk to generate excess return, but risk will be limited to a specified limit,

Here,

Standard Deviation of Stock B is very high so one will not choose this stock as risk is very high,

Average risk taker will not choose Stock A, even though it's standard deviation is low it's expected return is very low.

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