Question

if we have several investment choices that have the same ROI , which us most interesting to choose ? explain the types of items along with examples !

Answer 1

Solution:

If we have similar ROI on various investment choices then we should opt for the investment that has-

1. Minimum risk associated with it. The risk can be measured by the standard deviation.

2. Provides maximum liquidity

Let's consider various instruments

1. T-Note: This bond will have lowest risk as it is issued by the government

2. Fixed deposits : This will have low risk as the banks are regulated and have generally robust system in place

3. Stocks: This will have high risk as it is driven by the market supply and demand of the stock and its standard deviation will be high.

So if we compare these three options to invest when return is same in all of these then T-note is the best option as it will have lower risk.