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borteleto borteleto
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5 years ago
You are going to add one of the following three projects to your already well-diversified portfolio.

PROJECT 1PROJECT 2
ProbabilityReturnStandard DeviationBetaProbabilityRetur nStandard DeviationBeta
50% Chance22%12%1.130% Chance36%19.5%0.8
50% Chance-4%40% Chance10.5%
30% Chance-20%

PROJECT 3
ProbabilityReturnStandard DeviationBeta
10% Chance28%12%2.0
70% Chance18%
20% Chance-8%

Assume the risk-free rate of return is 2% and the market risk premium is 8%. If you are a risk averse investor, which project should you choose?
A) Project 1
B) Project 2
C) Project 3
D) Either Project 2 or Project 3 because the higher expected return on project 3 offsets its higher risk
Textbook 
Foundations of Finance

Foundations of Finance


Edition: 9th
Authors:
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Marc18Marc18
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5 years ago
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borteleto Author
wrote...
#2
5 years ago
TY!
wrote...
#3
5 years ago
You're welcome
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