Joe,a risk-averse investor,is trying to choose between investment A and investment B.If investment A is riskier than investment B and Joe selects investment A anyway,then
A) the actual return for investment A will be higher than the actual return for investment B.
B) the actual return for investment A will be higher than the expected return for investment B.
C) the expected return for investment A will be higher than the actual return for investment B.
D) the expected return for investment A will be higher than the expected return for investment B.

Question

Quizplus · Accepted Answer

As Joe is a risk-averse investor, it is unlikely that he would choose investment A if the expected return for investment B was higher. Therefore, we can assume that the expected return for investment A is higher than the expected return for investment B. However, if Joe chooses investment A despite it being riskier, it is possible that the actual return for investment B could be higher than the actual return for investment A, leading to option D being the correct answer.

Joe,a Risk-Averse Investor,is Trying to Choose Between Investment a and Investment