Assume two investment opportunities have identical expected values of $60,000. Investment A has a variance of 5,000 and investment B has a variance of 18,000. We would expect a risk loving investor to prefer (Select all that applies) Group of answer choices a) A because it has more risk. b) B because of its higher potential earnings. c) A because it provides higher potential earnings. d) B because it has more risk.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Assume two investment opportunities have identical expected values of $60,000. Investment A has a variance of 5,000 and investment B has a variance of 18,000. We would expect a risk loving investor to prefer
(Select all that applies)
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