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Stock A has an expected annual return of 24% and a return standard deviation of 28%....

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Finance

Stock A has an expected annual return of 24% and a returnstandard deviation of 28%. Stock B has an expected return 20% and areturn standard deviation of 32%. If you are a risk averseinvestor, which of the following is true?

A. You would never include Stock B in your portfolio, as itoffers a lower return and a higher risk.

B. Under certain conditions you would put all your money inStock B.

C. You would never invest in either one of the two stocks.

D. For a low enough correlation coefficient between the returnsof the two stock, you might want to invest in both.

E. I choose not to answer

Please give an explanation :)

Answer & Explanation Solved by verified expert
4.2 Ratings (530 Votes)
Answer D For a low enough correlation coefficient between the returns of the two stock you might want to invest in both ABCE are incorrect Explanation If an Investor is a riskaverse investor then he hates volatility that is a    See Answer
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