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

Question

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

Quizplus · Accepted Answer

The Answer of You are going to add one of the following three projects to your already well-diversified portfolio.  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.

You Are Going to Add One of the Following Three