Rashad is risk averse and has $4,500 with which to make a financial investment. He has three options. Option A is a risk-free government bond that pays 8 percent interest each year for two years. Option B is a low-risk stock that analysts expect to be worth about $5,248.80 in two years. Option C is a high-risk stock that is expected to be worth about $6,122.20 in four years. Rashad should choose
A.either A or B because they are the same to him.
B.option A.
C.option C.
D.option B.

Respuesta :

Answer:

Option A

Explanation:

Rashald should choose option A because it is low-risk, therefore guaranteeing to have $5,248.80 in two years.

Since Rashad is risk-averse, he should choose B. option A.

 

  • The investment in risk-free government bonds offers Rashad the best investment vehicle that meets his risk profile.

 

  • A risk-averse investor does not want increased returns to compensate for the higher risk in an investment.

Data and Calculations:

Total investment funds = $4,500

Rashad's risk profile = risk averse

Investment Options:

                                       Option A                   Option B             Option C

                                       risk-free                     low-risk              high-risk

                               government bond              Stock                   Stock

Interest rate                         8%                        

Investment period             2 years                     2 years

Investment balance          $5,200                  $5,248.80           $6,122.20

Total return on investment $720 ($360 x 2)   $748.80          $1,622.20

Thus, the best option for Rashad is Option A.

Read more about investment risk profiles at https://brainly.com/question/19369149 and https://brainly.com/question/18752924