Given the following information, a rational investor would most likely invest in which stock? Stock A: Mean Return - 5%; Standard Deviation - 9% Stock B: Mean Return - 5%; Standard Deviation - 12%

Question

Darwin Lee

Business

9 September, 03:57

Given the following information, a rational investor would most likely invest in which stock? Stock A: Mean Return - 5%; Standard Deviation - 9% Stock B: Mean Return - 5%; Standard Deviation - 12%

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Answers (1)

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Augustus Rich · Answer 1

Stock A.

Explanation:

As the mean return is same for both stocks A and Stock B, the decision is based on standard deviation. The higher standard deviation represents the more risky investment because its prices fluctuates more. Stock A is more stable and less risky than Stock B, so a rational investor will invest in a more stable stocks.