Question

Which investment has the least amount of risk? standard deviation = $450, expected return = $4,500 standard deviation = $600, expected return = $400 standard deviation = $500, expected return = $800 standard deviation = $400, expected return = $5,000?

Answer 1

The investment with the highest expected return to standard deviation ratio is the investment with the least risk.

Investment 1: standard deviation = $450, expected return = $4,500
expected return to standard deviation ratio = 4500 / 450 = 10

Investment 2: standard deviation = $600, expected return = $400
expected return to standard deviation ratio = 400 / 600 = 0.67

Investment 3: standard deviation = $500, expected return = $800
expected return to standard deviation ratio = 800 / 500 = 1.6

Investment 4: standard deviation = $400, expected return = $5,000
expected return to standard deviation ratio = 5000 / 400 = 12.5

Therefore, the investment that has the least amount of risk is the invetment with standard deviation = $400, expected return = $5,000