1 Compare the three investments below in terms of their risk

1.      Compare the three investments below in terms of their riskiness. What is the best way to evaluate the riskiness of an investment given the information you have on them?

Project

Expected Return

Standard Deviation

A

$100,000

$25,000

B

$200,000

$40,000

C

$50,000

$20,000

Solution

we know that standard deviation = sqrt(variance)

so if standard deviation is high then variance would be also high

that means there is more variance in the expected return , so we cant predict the expected return exactly, hence the project with high standard deviation will be at higher risk