You are thinking of adding one of two investments to an already well diversified portfolio. Security A Security B
Expected return = 12% Expected return = 12%
Standard deviation of returns = 20.9% Standard deviation of returns = 10.1%
Beta = .8 Beta = 2
If you are a risk-averse investor
A) security A is the better choice.
B) security B is the better choice.
C) either security would be acceptable.
D) cannot be determined with information given.

Question

Quizplus · Accepted Answer

As a risk-averse investor, you would want to choose the investment with lower risk, which is measured by standard deviation of returns. Security A has a higher standard deviation of returns compared to Security B, which makes it the riskier choice. Therefore, Security B would be the better choice for a risk-averse investor.

You Are Thinking of Adding One of Two Investments to an Already