Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk.Which security has the least risk? Note: You can answer this question intuitively, without calculating the standard deviation.However, if you want to calculate the standard deviation, the equation is: Standard deviation = S =

\left\{ p _ { 1 } \left( X _ { 1 } - E \right) ^ { 2 } + p _ { 2 } \left( X _ { 2 } - E \right) ^ { 2 } + \ldots + p _ { N } \left( X _ { N } - E \right) ^ { 2 } \right\} ^ { \frac { 1 } { 2 } }

Investment A:

\quad

total return = 10 percent with probability 50 percent

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\quad

\quad

\quad

\quad

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Total return = 20 percent with probability 50 percent

Investment B:

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total return = 12 percent with probability 50 percent

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\quad

\quad

\quad

\quad

\quad

total return = 20 percent with probability 50 percent

Investment C:

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total return = 5 percent with probability 60 percent

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\quad

\quad

\quad

\quad

\quad

total return = 25 percent with probability 40 percent

Investment D:

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total return = 5 percent with probability 60 percent

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\quad

\quad

\quad

\quad

\quad

total return = 7 percent with probability 40 percent

A)Investment A
B)Investment B
C)Investment C
D)Investment D

Andy Keeps His Savings in a Certificate of Deposit at a Bank

Multiple Choice

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