$\begin{array}{|l|c|c|}
\hline \text { Asset } & \begin{array}{c}
\text { Expected return } \
(\mathrm{E}(\mathrm{R}) \boldsymbol{)}
\end{array} & \begin{array}{c}
\text { Standard deviation } \
\text { (ธ) }
\end{array} \
\hline \mathrm{A} & 10 \% & 9 \% \
\hline \mathrm{B} & 12 \% & 8 \% \
\hline \mathrm{C} & 15 \% & 12 \% \
\hline \mathrm{D} & 13 \% & 11 \% \
\hline
\end{array}$
-Given no other information other than the expected returns and risk,which asset would a risk-averse investor prefer?
A) $\text { Asset A }$
B) $\text { Asset B}$
C) $\text { Asset C}$
D) $\text { Asset D }$

Question

Quizplus · Accepted Answer

For two assets with the same expected return,a risk-averse investor will prefer the investment with the lower standard deviation,and for two investments with the same standard deviation will prefer the investment with the highest return.In this case,since the investments have different risks and expected returns,the coefficient of variation can be used.All other things equal,for a risk-averse investor a lower coefficient of variation is desirable,as this indicates less risk for each unit of expected return.Using equation 1.10,page 20,the coefficient of variation (CV)can be calculated by dividing the standard deviation by the expected return.That is,the CV of asset A is 0.09/0.10 = 0.9,for asset B is 0.08/0.12 = 0.67,for asset C is 0.12/0.15 = 0.8 and for asset D is 0.85.Therefore,asset B has the lowest coefficient of variation,hence will be the most preferred by a risk-averse investor.

-Given No Other Information Other Than the Expected Returns and }