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

Question:

Shireen Salim, the financial manager for Barnett Corporation, 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 and expected risk of the investments are as follows.
Investment Expected return Expected risk index
X..........................14%........................................7%
Y...........................12..................................8
Z...........................10..................................9
a. If Shireen were risk-indifferent, 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...