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 security has the least risk? Note: You can answer this question intuitively, without calculating the standard deviation. However, if you want to calculate the standard deviation, the equation is:
Standard deviation = S = . Investment A:total return = 10 percent with probability 50 percent total return = 20 percent with probability 50 percent Investment B:total return = 12 percent with probability 50 percent total return = 20 percent with probability 50 percent Investment C:total return = 5 percent with probability 60 percent total return = 25 percent with probability 40 percent Investment D:total return = 5 percent with probability 60 percent total return = 7 percent with probability 40 percent
A. Investment A
B. Investment B
C. Investment C
D. Investment D
Answer: D
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