For two projects with the same cost, the one that is more risky has the:
A)lowest standard deviation.
B)lowest expected profit.
C)highest standard deviation.
D)highest expected profit.

Question

Quizplus · Accepted Answer

A higher level of risk will result in a higher standard deviation, indicating a wider range of potential outcomes. Therefore, the project with more risk will have a higher standard deviation than the project with less risk. However, a higher level of risk also has the potential for higher expected profit, so the project with more risk may also have a higher expected profit. Therefore, the correct answer is C, which is the choice that indicates the highest standard deviation, but does not make any assumptions about the expected profit. Risk and standard deviation are directly related. The more risky a project is, the higher its standard deviation will be. Therefore, the project with the higher standard deviation (Choice C) is the more risky option.

For Two Projects with the Same Cost, the One That