Rogue Recreation,Inc.has normally distributed returns with an expected return of 15% and a standard deviation of 5%,while Lake Tours,Inc.has normally distributed returns with an expected return of 15% and a standard deviation of 15%.Which of the following is true?
A) Lake Tours' investors are not being adequately compensated for relevant risk.
B) Rogue Rec is likely to experience returns larger than those of Lake Tours.
C) Lake Tours is more likely to have negative returns than Rogue Rec.
D) Rational investors will prefer Lake Tours, Inc. over Rogue Recreation, Inc.

Question

Quizplus · Accepted Answer

Lake Tours, Inc. has a higher standard deviation (15%) compared to Rogue Recreation, Inc. (5%), indicating greater volatility in returns. A higher standard deviation means a wider distribution of returns, increasing the likelihood of negative returns. Therefore, Lake Tours is more likely to have negative returns than Rogue Rec.