When considering different investments, a risk-averse investor is most likely to focus on purchasing:
A)Investments with the greatest spread in the expected rate of return
B)Investments that offer the lowest standard deviation in the investments' expected rates of return for any given expected rate of return
C)Only risk-free investments
D)Investments with the lowest risk premium, regardless of the expected rate of return

Question

Quizplus · Accepted Answer

A risk-averse investor is more concerned about minimizing risks and avoiding losses rather than maximizing returns. Therefore, they would look for investments that have a low standard deviation of expected returns, which means that their actual returns are likely to be close to their expected returns. The lower the deviation, the better the investment is considered to be for a risk-averse investor. Hence, option B is the most suitable choice for this investor. Option A and D both entail higher levels of risk, and option C may not provide sufficient returns to meet the investor's financial goals.

When Considering Different Investments, a Risk-Averse Investor Is Most Likely