For an investor with risk aversion index A=4, which portfolio is preferable? A. Portfolio B with...

For an investor with risk aversion index A=4, which portfolio is preferable? A. Portfolio B with an expected return of 10% and standard deviation of 17% B. Risk-free asset with an expected return of 4% C. Portfolio C with an expected return of 12% and standard deviation of 20% D. Portfolio A with an expected return of 8% and a standard deviation of 13%

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A risk averse investor generally avoids any risky investments and prefers investments which provide sure shot returns with no or very less level of risks. They generally prefer to invest in debentures, government bonds, and index funds. Options A, C, and D all refer to risky investment opportunities with higher level of risks and higher returns. Therefore, a risk averse investor wouldn't prefer to invest in such risky investment portfolios. Hence, option B is the correct choice which refers to risk-free asset preferred by risk averse investors.

jeff jeffy answered 2 years ago

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