Investments A and B both offer an expected rate of return of 12%. If the standard deviation of A is 20% and that of B is 30%, then investors would:
A) Prefer A to B
B) Prefer B to A
C) Prefer a portfolio of A and B
D) Cannot answer without knowing investor's risk preferences

Question

Quizplus · Accepted Answer

Investors would prefer A over B because it has a lower standard deviation, indicating less risk. Even though both investments offer the same expected rate of return, investors generally prefer less risk.

Investments a and B Both Offer an Expected Rate of Return