Question

Suppose Maria prefers to buy a bond with a​ 7% expected return and​ 2% standard deviation of its expected​ return, while Jennifer prefers to buy a bond with a​ 4% expected return and​ 1% standard deviation of its expected return.Can you tell if Maria is more or less​ risk-averse than​ Jennifer?

Answer 1

Maria is more risk-averse

Step-by-step explanation:

By nature this question can be seeing as a coutien between the risk (standard deviation) and return so let's check the following formula:

Return per risk unit= return/standard deviation

So applying that formula to this particular case we have:

Maria's case=0.07/0.02

Maria's case=3.5

Jennifer's case=0.04/0.01

Jennifer's case=4

So the conclusion here is that even Maria has a higher standard deviation her risk per return is less than jennifer