6 -5 An investor will always choose an investment which has the highest return a

Question

6 -5

An investor will always choose an investment which has the highest return and lowest risk. Among the three, Asset Q and Asset U have same risk and Asset U and Asset B have same returns. Since Asset U has lower risk than Asset B, the investor will prefer Asset U. An investor will choose between Asset Q with an expected return of 6.5% and a standard deviation of 5.5%, Asset U with an expected return of 8.8% and a standard deviation of 5.5%, and Asset B with an expected return of 8.8% and a standard deviation of 6.5%. Which one should the investor prefer? Asset B Cannot be determined Asset U Asset Q

Explanation / Answer

THE INVESTOR HAS TO PREFER ASSET U BECAUSE IT HAS HIGHER RETUEN (8.8%) AND LOW RISK(5.5%) WHEN COMPARED TO ASSET Q & B

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