The graph to the right shows the distribution of outcomes for two investment opp

Question

The graph to the right shows the distribution of outcomes for two investment opportunities; Opportunity A in blue and Opportunity B in red. Probability Opportunity A Opportunity B Which opportunity has the lowest risk? Which has the highest expected payoff? 0 A, A has the lowest risk and highest expected payoff 0 B. B has the lowest risk, and both have the same expected payoff O C. Ahas the lowest risk, and both have the same expected payoff D. B has the lowest risk, but A has the highest expected payoff E. B has the lowest risk and highest expected payoff A has the lowest risk, but B has the highest expected payoff. 1000 Payoff (S) 1500

Explanation / Answer

The correct answer is A. The standard deviation is least in option A and so it has the lowest risk and also the mean outcome is greater in A. The correct answer is A.

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