Author Question: Which of the statements below is NOT correct? A) If two investments have the same expected ... (Read 39 times)

ssal · **on:** Jul 10, 2018

Which of the statements below is NOT correct?

A) If two investments have the same expected return, the investment with the lower risk is preferred.
B) If two investments have the same expected return, the investment with the greater risk is preferred.
C) If two investments have the same expected risk, the investment with the higher expected return is preferred.
D) If one investment has a higher expected return and a greater level of risk than another, it is not clear which investment is the preferred choice.

Question 2

If two investments have the same expected return, a rational investor will choose the investment with the greater risk in an effort to get a much larger return.

Indicate whether the statement is true or false.

bhavsar · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: B
Explanation: B) If two investments have the same expected return, the investment with the LOWER risk is preferred.

Answer to Question 2

Answer: FALSE
Explanation: If two investments have the same expected return, a rational investor will choose the investment with the LESSER risk in an effort to minimize uncertainty.