Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to
A) higher returns.
B) more likely outcomes.
C) higher risks.
D) smaller returns.

Question

Quizplus · Accepted Answer

When investors evaluate an investment, they consider the probability of different outcomes and assign weights accordingly. Since more likely outcomes have a higher chance of occurring, they are assigned higher weights. Therefore, choice B, which refers to more likely outcomes, is the best choice. Higher returns (choice A) may be desirable but are not always achievable, and higher risks (choice C) may lead to higher returns but also increase the likelihood of losses. Smaller returns (choice D) are generally considered less desirable than higher returns.

Investors Evaluate an Investment by Estimating Its Average Expected Rate