Which of the following investments is clearly preferred to the others for an investor who is...

Which of the following investments is clearly preferred to the others for an investor who is not holding a well-diversified portfolio..

Asset	E(r)	σ²
A	.15	.10
B	.18	.12
C	.21	.08

Solutions

Expert Solution

Investor will always be preparing Assets which are offering him with the highest expected rate of return and lower standard deviation because standard deviation will be a reflecting the risk associated with the movement of the Asset and in this case it can be snee that ASSET C is providing with the highest expected rate of return of 21% and the variance is also lower up to just 8% and hence it is the best available choice for the investor because other two assets are offering with lower expected rate of return and higher standard deviation so investors should be going with the asset which has highest expected rate of return and lowest standard deviation as it will cut his risk and maximize his rate of return.

The investor will be choosing ASSET C.

jeff jeffy answered 2 years ago

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