Question

Suppose option A has a higher variance than option B. Which of the following statements is, in general, true?

It says that answer is D which I dont agree.

which option is right? please support detail reason

A.	A risk-neutral person is indifferent between options A and B.

B.	A risk-averse person prefers option B to option A.

C.	A risk-averse person prefers option A to option B.

D.	There is insufficient information to determine which is true.

Answer 1

Risk seekers always maximize their return so they would look for projects with greater expected return even if they carry a greater risk (higher variance or standard deviation). Similarly risk averse individuals will always select projects with a lower risk (lower variance or standard deviation) for same expected return. In this case we are not given the expected returns so we cannot say what a risk averse, risk neutral or risk seeking person will do. Hence the answer is D.