An investment that is risk-free
A)has a standard deviation equal to its expected value.
B)is a fair bet.
C)has a variance of zero.
D)Both A and B are true.

Question

Quizplus · Accepted Answer

A risk-free investment has no variability in its returns, which means it will have a variance of zero. This is because the return on a risk-free investment is guaranteed by the issuer, such as the government, and there is no chance of losing your money. A fair bet, on the other hand, has an expected value of zero, meaning that you have an equal chance of winning or losing, and the standard deviation would be greater than zero. Therefore, choice C is the correct answer. An investment that is risk-free has a variance of zero, which means that there is no chance of loss. A fair bet has an expected value equal to its cost, but a risk-free investment will have a higher expected value because there is no chance of losing money. A standard deviation equal to the expected value indicates a high level of risk, so option A is incorrect. Option B is partially true, but a risk-free investment is better than a fair bet because it has no chance of loss. Therefore, option C is the best choice.

An Investment That Is Risk-Free