The following equally likely outcomes have been estimated for the returns on Portfolio J and Portfolio M:
-Refer to the information above. Which of the two portfolios is riskier?

Question

The following equally likely outcomes have been estimated for the returns on Portfolio J and Portfolio M: 
-Refer to the information above. Which of the two portfolios is riskier?

Quizplus · Accepted Answer

Portfolio M is riskier as its returns are more widely dispersed around the expected return, indicating a higher level of variability and uncertainty in returns. While Portfolio J has a lower expected return, it has a more narrow range of possible returns, indicating lower variability and risk. Additionally, the possibility of a negative return does not necessarily make a portfolio riskier, as it depends on the magnitude of the potential loss and the likelihood of it occurring. Portfolio M is riskier because its returns are more widely dispersed around the expected return, indicating greater volatility and uncertainty. The fact that Portfolio M has the possibility of a negative return does not necessarily make it riskier, as the probability of that outcome is equally likely as the possibility of achieving the highest expected return. Similarly, Portfolio J having a higher expected return does not necessarily make it riskier, as the dispersion of returns around that expectation is not known. Therefore, the best answer is B.

The Following Equally Likely Outcomes Have Been Estimated for the Returns