Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which investment provides the highest expected return? * | Total return = 10 percent with probability 50 percent |Total return = 20 percent with probability 50 percent Investment A: Total return = 12 percent with probability 50 percent Total return = 18 percent with probability 50 percent Investment B: Investment C: |Total retum = 5 percent with probability 60 percent Investment A O Investment B O Investment C Investments A and B have the same expected return, which is greater than that of investment C.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Suppose you are an investor with a choice between three securities that are
identical in every way except in terms of their rates of return and risk. Which
investment provides the highest expected return? *
Total return = 10 percent with probability 50 percent
Total return = 20 percent with probability 50 percent
Investment A:
Total return = 12 percent with probability 50 percent
Total return = 18 percent with probability 50 percent
Investment B:
Investment C:
Total retum = 5 percent with probability 60 percent
Investment A
Investment B
Investment C
Investments A and B have the same expected return, which is greater than that of
investment C.
Transcribed Image Text:Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which investment provides the highest expected return? * Total return = 10 percent with probability 50 percent Total return = 20 percent with probability 50 percent Investment A: Total return = 12 percent with probability 50 percent Total return = 18 percent with probability 50 percent Investment B: Investment C: Total retum = 5 percent with probability 60 percent Investment A Investment B Investment C Investments A and B have the same expected return, which is greater than that of investment C.
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