Project 1
Probability Return Standard Deviation Beta
50% Chance 22% 12% 1.2
50% Chance 4%
Project 2
Probability Return Standard Deviation Beta
30 % Chance 28% 19.5% .08
40% Chance 10.5%
30% Chance 20%
Project 3
Probability Return Standard Deviation Beta
10% Chance 28% 12% 2.0
70% Chance 18%
20% Chance 8%
Assume the risk free rate of return is 2% and the market risk premium is 8$. If you are a risk averse investor, which project should you choose?
Please be specific and explain why
A. Either Project 2 or Project 3 because the higher expected return on Project 3 offsets its higher risk
B. Project 2
C. Project 1
D. Project 3
Again please explain why you would pick being risk averse. Thanks