The expected return of Project Y is at least equal to the expected return of Project X, and the variance of Y is less than that of X. Using the mean variance rule, what would you do?
A) Reject both projects
B) Accept both projects
C) Prefer Project X
D) Prefer Project Y

Question

Quizplus · Accepted Answer

According to the mean variance rule, when choosing between two projects, we should prefer the one with the highest expected return for a given level of risk or the one with the lowest level of risk for a given expected return. Since Project Y has a lower variance than Project X and at least the same expected return, it is the superior choice. Therefore, we should prefer Project Y.

The Expected Return of Project Y Is at Least Equal