Which of the following will increase the money supply? Question 17 options: an increase in the discount rate (relative to the fe
1 answer:
You might be interested in
Answer:
(C) Asset Y, since its coefficient of variation is lower and its expected return is higher
Explanation:
Given the various probabilities (P) and returns (R) for Asset X and Asset Y, their expected return is computed as follows.
Asset X =
= (0.1*-3%) + (0.1*2%) + (0.25*5%) + (0.25*8%) + (0.3*10%)
Expected return (Asset X) = 6.15%
Asset Y =
= (0.05*-3%) + (0.1*2%) + (0.3*5%) + (0.3*8%) + (0.25*10%)
Expected return (Asset Y) = 6.45%.
Due to its higher expected return, Asset Y should be preferred.
The answer is option C because it contained a statement that Asset Y has a higher expected return.
Option (B) is wrong because we are not certain if Asset Y has a lower beta. We were not given any information to compute the beta.
Options (A), (D) and (E) are wrong because they did not specify Asset Y has the preferred asset.