Question

Given the following information, a rational investor would most likely invest in which stock? Stock A: Mean Return – 5%; Standard Deviation – 9% Stock B: Mean Return – 5%; Standard Deviation – 12%

Answer 1

Answer:

Stock A.

Explanation:

As the mean return is same for both stocks A and Stock B, the decision is based on standard deviation. The higher standard deviation represents the more risky investment because its prices fluctuates more. Stock A is more stable and less risky than Stock B, so a rational investor will invest in a more stable stocks.