Project A and Project B both have expected values of $5,000. Project A has a standard deviation of $1,000, while Project B has a standard deviation of $3,000. Comment on the desirability of these projects
What will be an ideal response?
Both have the same expected value, but A has a lower standard deviation. It is 99% certain that the return from A will be between $2,000 and $8,000. However, for B, it is 99% certain that the return will be between $-4,000 and $14,000. Project B is more risky and thus less desirable.
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