Risky Investment (2pts) Consider two research and development opportunities with equal cost facing a geothermal engineering company. The expected return on investment and variance for both proposals is thought to follow a normal distribution. The first proposal has an expected return on investment ROI = (Gain - Cost)/Cost of 1 with a standard deviation of 0.5, while the second proposal has an expected ROI of 1 with an standard deviation of 0.25. Which proposal do you favor and why?

Answer rating: 100% (QA)

To determine which proposal to favor we can use the concept of risk and return In investment analysis investors generally prefer higher returns for a ... View the full answer