Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and

Question:

Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Sharon will evaluate each of these investments to decide whether they are superior to investments that her company already has in place, which have an of 12% and a standard deviation of 6%. The expected returns and standard deviations of the investments are as follows:

a. If Sharon were risk neutral, which investments would she select? Explain why.
b. If she were risk averse, which investments would she select? Why?
c. If she were risk seeking, which investments would she select? Why?
d. Given the traditional risk preference behavior exhibited by financial managers, which investment would be preferred?Why?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...