Question

d. Suppose a fourth​ investment, W, is available. It offers an expected return of​ 15%, and it has a standard deviation of​ 9%. If Sharon is risk​ averse, can you say which investment she will​ choose? Why or why​ not? Are there any investments that you are certain she will not​ choose? ​(Select the best answer​ below.)

Answer 1

See below.

Step-by-step explanation:

A risk averse investor always chooses lower returns and lower risks as compared to higher risk and higher returns. Standard deviation being the risk, Sharon will chose an investment that gives a better relationship between return an the risk factor. In a risk return trade off scenario, which associates probabilities to returns, a risk averse investor will chose an investment that gives a higher probability of smaller but more secure return than the opposite. For example if there was an other investment with 12% return but SD of 4%, Sharon would have opted for this as it provides more security.

Since the information is limited as per the question, Hope this helps.