You're comparing two project and need to determine which is preferred. Both projects have an expected return of 15%. Project "A" has a standard deviation of 2.5. Project "B" has a variance of 9. A risk averse investor would pick: Question 24 options: Project "B" because the variance for project "A" is unkown Project "A" because it has a lower standard deviation than project "B" but the same expected return Project "A" because the standard deviation of project "B" is unknown Project "B" because it has a lower variance than project "A"
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
You're comparing two project and need to determine which is preferred. Both projects have an expected return of 15%. Project "A" has a standard deviation of 2.5. Project "B" has a variance of 9. A risk averse investor would pick:
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Project "B" because the variance for project "A" is unkown |
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Project "A" because it has a lower standard deviation than project "B" but the same expected return |
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Project "A" because the standard deviation of project "B" is unknown |
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Project "B" because it has a lower variance than project "A" |
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