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 investment provides the highest expected return?
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: B
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