Question
Asset A has an expected return of 17 percent and standard deviation of 5 percent. Asset B has an expected return of 15 percent and standard deviation of 5 percent. Which asset would a rational investor choose?
Multiple choice question.
Asset A or B since they both are equally risky
Asset B
Asset A
Neither A or B since they are both risky
Multiple choice question.
Asset A or B since they both are equally risky
Asset B
Asset A
Neither A or B since they are both risky
Answers
GPT-4o mini
To determine which asset a rational investor would choose, we should consider both the expected return and the risk (standard deviation) of each asset.
- **Asset A**
- Expected return: 17%
- Standard deviation: 5%
- **Asset B**
- Expected return: 15%
- Standard deviation: 5%
Although both assets have the same standard deviation (risk), Asset A offers a higher expected return (17% vs. 15% for Asset B).
A rational investor typically seeks to maximize returns for a given level of risk. Since Asset A has a higher expected return with the same level of risk as Asset B, a rational investor would likely choose:
**Asset A.**
- **Asset A**
- Expected return: 17%
- Standard deviation: 5%
- **Asset B**
- Expected return: 15%
- Standard deviation: 5%
Although both assets have the same standard deviation (risk), Asset A offers a higher expected return (17% vs. 15% for Asset B).
A rational investor typically seeks to maximize returns for a given level of risk. Since Asset A has a higher expected return with the same level of risk as Asset B, a rational investor would likely choose:
**Asset A.**