Question

You are considering investing in one of the these three stocks:Stock Standard Deviation BetaA 20% 0.59B 10% 0.61C 12% 1.29If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.a. A; B.b. B; A.c. C; A.d. C; B.e. A; A.

Answer 1

Answer:

The correct option is B.

Explanation:

Risk aversion is a situation where investor like returns and dislike the risk. The higher the risk, higher the expected return an investor will demand.

In this situation, will look at the standard deviation (SD). The larger the SD, it states that outcome will be dispersed widely and smaller SD, states that the outcome or result will be more tightly cluster around the expected value. So, because of this will be choosing the Stock B for isolation and Stock A for portfolio which well diversified.