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Author Question: It is typically easy to determine a precise mix of optimal debt and equity. Indicate whether the ... (Read 12 times)

Brittanyd9008

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on: Jul 11, 2018
It is typically easy to determine a precise mix of optimal debt and equity.
 
  Indicate whether the statement is true or false

Question 2

Investment A has an expected return of 14 with a standard deviation of 4, while investment B
  has an expected return of 20 with a standard deviation of 9. Therefore,
 
  A) rational investors could pick either A or B, depending on their level of risk aversion.
  B) a rational investor will pick investment B because the return adjusted for risk (20 - 9) is
  higher than the return adjusted for risk for investment A (14 - 4).
  C) a risk averse investor will definitely select investment A because the standard deviation is
  lower.
  D) it is irrational for a risk-averse investor to select investment B because its standard deviation
  is more than twice as big as investment A's, but the return is not twice as big.


tandmlomax84

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Reply #1 on: Jul 11, 2018
Answer to Question 1

FALSE

Answer to Question 2

A


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