Figure 27-2.On the graph,x represents risk and y represents return.
-Robert is risk averse and has $1,000 with which to make a financial investment.He has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Robert should choose

Question

Figure 27-2.On the graph,x represents risk and y represents return. 
-Robert is risk averse and has $1,000 with which to make a financial investment.He has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Robert should choose

Quizplus · Accepted Answer

Since Robert is risk averse, he is more concerned about preserving his initial investment rather than maximizing his returns. Option A, a risk-free government bond, guarantees a 5 percent return each year for two years, with no risk of losing his initial investment. Option B and Option C both involve some level of risk, and there is a chance that Robert could lose some or all of his initial investment. Therefore, option A is the best choice for Robert.