All of your work should go into a single Excel file. Use Excel formulas to solve all problems.
Some investors are risk takers and will make a risky investment in the hope of making a large rate of return. Other investors are sufficiently risk averse so that they would prefer safer investments, despite the potentially smaller rates of return. Information about historical rates of return and standard deviation for 3 stocks are set out below. Nothing significant is expected to change regarding the performance of any of the 3 companies. Think carefully about this one.
Which stock would be preferable to an investor with a strong appetite for risk (i.e. a high risk tolerance)? Why?
Which stock would be preferable to a conservative investor seeking to avoid risk? Why?
In which stock would an investment not make sense to a rational investor, whatever their risk tolerance? Why?
Historical Mean Returns Historical Standard Deviation
Stock of Company A 25% 30%
Stock of Company B 10% 30%
Stock of Company C 10% 5%