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Risk-indifferent, risk-adverse and risk-seeking

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A manager wishes to evaluate three possible investments. These investments are for the purchase of a new machine tools from Germany, Japan, and US. The firm earns 10% on its investments and they have a risk index of 5%. The attached chart lays out the expected return and expected risks of the three projects.

A. If the manager were risk-indifferent, which investments would he select? Why?
B. If he was risk-adverse which investments would he select? Why?
C. If he was risk seeking which investments would he select? Why?
D. Given the traditional risk preference behavior exhibited by financial managers, which investment would be preferred? Why?

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The solution explains the investment preferences for risk-indifferent, risk-adverse and risk-seeking behavior

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Jonathon Barrs is a manager for Easy Manufacturing, LLC. He wishes to evaluate three possible investments. These investments are for the purchase of new machine tools from Germany, Japan, and a local US manufacturer. The firm earns 10% on its investments and they have a risk index of 5%. The chart below lays out the expected return and expected risks of the three projects.

Investment Expected Return Expected Risk
German ...

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