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