You are going to invest all of your funds in one of three projects with the following distribution of possible returns:
If you are a risk averse investor,which one should you choose?
A) Project 1
B) Project 2
C) Project 3
D) Either Project 1 or Project 2 because they have the same expected return.

Question

You are going to invest all of your funds in one of three projects with the following distribution of possible returns:
 If you are a risk averse investor,which one should you choose?
A) Project 1 
B) Project 2 
C) Project 3 
D) Either Project 1 or Project 2 because they have the same expected return.

Quizplus · Accepted Answer

As a risk averse investor, the best choice is to choose the project with the lowest possible standard deviation or variance. In this case, Project 3 has the lowest standard deviation of 0.45 which makes it the best choice. While Project 1 and 2 have higher expected returns, they also have higher levels of risk which does not align with the risk averse investor's preference.

You Are Going to Invest All of Your Funds in One