Investment A guarantees its holder $100 return. Investment B earns $0 or $200 with equal chances over the same period. Both investments have equal risk.

Question

Quizplus · Accepted Answer

The expected return on Investment B is $100, which is the same as Investment A. However, Investment B has more variability in its returns as it could either earn $0 or $200 with equal chances. This higher variability leads to a higher level of risk compared to Investment A, which guarantees a return of $100. Therefore, Investment B has a higher risk compared to Investment A.

Investment a Guarantees Its Holder $100 Return