Question: Two assets have the following expected returns and SD when the risk-free rate is 5%. Asset(A) -> E(r)= 10% SD= 20% Asset(B) -> E(r)= 15%

Two assets have the following expected returns and SD when the risk-free rate is 5%.

Asset(A) -> E(r)= 10% SD= 20%

Asset(B) -> E(r)= 15% SD= 27%

  • An investor with risk aversion A=3 would find that _______________ on a risk a risk-return basis.

A- Only Asset A is acceptable

B- Only Asset B is acceptable

C- Neither Assets A and B are acceptable

D- Both Assets A and B are acceptable

I know the answers A and B are incorrect. Please, explain your answer.

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