Oren Wells, the financial manager for Winston Enterprise,wishes to evaluate three prospective investments X,Y AND Z.Currently,the firm earns 12 percent on its investments,which have a risk index of 6 percent.The three investments under consideration are profiled in the following table in terms of expected return and expected risk.If Oren Owells is risk-averse,which investment,if any will he select? explain why.
Investments Expected return Expected risk index
X 14% 7%
Y 12% 8%
Z 10 % 9%
2007-06-21 05:08:19 · 3 answers · asked by Ampofo A 1 in Business & Finance ➔ Investing
Risk Index is not a common term I've come across .. I'm going to assume it's simple defined as 'percentage risk of not achieving the expected out come' ...
Using the values given it's possible to calculate a 'mean expected return' .. however 'risk averse' means he wants to choose the LOWEST risk IRRESPECTIVE of return .. in this event, plainly 'X' wins out.
The only 'fly in the ointment' is the 'if any' clasue .. now you will need to makle a value judgement ... is 7% RISK acceptable to some-one who is RISK AVERSE ? ...
If you think 'yes', then 'X', if you think 'no' then the answer is 'none of them'.
2007-06-21 20:37:18 · answer #1 · answered by Steve B 7 · 0⤊ 0⤋
X the expected return is the highest and the risk in the lowest
2007-06-21 05:12:39 · answer #2 · answered by davetumalty 4 · 0⤊ 0⤋
Do your own homework you naughty naughty boy!
2007-06-21 05:11:25 · answer #3 · answered by Liggy Lee 4 · 1⤊ 0⤋