the following return schedules for 3 investments: return -2% 6% 10% Prob 0.4 0.3 0.3 8.72% 2 return Prob -5% 12% 0.5 0.5 return 2% 3 Prob 1 std dev (a) 12.02% 0.00% Can you say for certain which investment would be preferred by a risk averse investor? Can you say for certain which investment would NOT be chosen by a risk averse investor? Explain your answer. [HINT: start by calculating the expected values!]

the following return schedules for 3 investments: return -2% 6% 10% Prob 0.4 0.3 0.3 8.72% 2 return Prob -5% 12% 0.5 0.5 return 2% 3 Prob 1 std dev (a) 12.02% 0.00% Can you say for certain which investment would be preferred by a risk averse investor? Can you say for certain which investment would NOT be chosen by a risk averse investor? Explain your answer. [HINT: start by calculating the expected values!]

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 9PROB

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