Risk proferences Sharon Smith, the financial manager for Barnelt Corporation, wishes to select one of three prospoctive investments: X, Y, and Z. Assume that the measure of risk Sharon cares about is an asset's standard deviation. The expected roturns and standard deviations of the investments are as followsit. a. If Sharon were rivk neutral, which investment would she solect? Explain why. b. If she were risk averse, which irvestment would she select? Why? c. If she wore risk secking. which investments would she gelect? Why? d. Suppose a fourth investment, W, is available. It offers an expected refurn of 17%, and it has a standard deviation of 9%. If Sharon is fisk averse, can you say which investrent she will choose? Why or why not? Are there any investments that you are certain she wil not choose? D. Invostment x d. Suppose a fourth investmont, W, is available. it offers an expected return of 15%, and it has a standard devaton of 9% if Sharon is risk averse; cain you say which investment she will choose? Why or why not? Are there any investments that you are certain she will not choose? (Seleet then best answer below.) A. If Sharon wore risk averse, it ia not clear whether sho would prefer investment W or X. F From part (o) Sharon prefens X io Y and Z, but inveatmere Whas a iower. expected roturn and standard doviation. Thus, Sharon's preference botween W and X will depend on whether the return expecied on W is simitielen compensation for the extea investment. In other words, Sharon's choice will depend on ber rigk tolecanco f(e, her degree of risk aversich) B. If Sharon were risk overse, is not cloar whether she would prefer investment W or X. From part (b). Sharon profors X to Y and Z, but imvestment W has a higher expected return and standard deviation. Thus, Sharon's preferenco between W and X will depend on whether the extra return axpected on W is sumitelent compensation for the exira risk. In other words. Sharon's cholce wil depend on her risk tolerance (i.e, her degree of rak avenion) C. It Sharon were risk averse, is is not dear whether she would prefer investment W or Z. From part (b), Sharon profors Z bo X and Y, but invesenent W has a higher expected return and standard deviation. Thus, Sharon's preferonce between W and Z will depend on whelhor the extra refum expected on W in wufficient componsation for tha extra risk. In other words, Sharoers choice wil depend on hat risk lolerance (Le, her degree of tisk aversion) D. If Sharon were nisk averse, it is not dear whether she would prefoc imesenent Wor Y. From part (b). Sharon profors Y to X and Z but invostmeat W has a eompensabion foc the extra risk. In other words, Sharpols choice will depend on her risk tolerance (fe, her degree of risk aversice?Bluestone Metals, Inc., is a metal fabrication firm that manufactures profabricated metal parts for customers in a variety of industries, The firm's motto is if you need it, can make it." The CEO of Bluestone recently held a beard meet.

1. Risk proferences Sharon Smith, the financial manager for Barnelt Corporation, wishes to select
one of three prospoctive investments: X, Y, and Z. Assume that the measure of risk Sharon cares
about is an asset's standard deviation. The expected roturns and standard deviations of the
investments are as followsit. a. If Sharon were rivk neutral, which investment would she solect?
Explain why. b. If she were risk averse, which irvestment would she select? Why? c. If she wore
risk secking. which investments would she gelect? Why? d. Suppose a fourth investment, W, is
available. It offers an expected refurn of 17%, and it has a standard deviation of 9%. If Sharon is
fisk averse, can you say which investrent she will choose? Why or why not? Are there any
investments that you are certain she wil not choose? D. Invostment x d. Suppose a fourth
investmont, W, is available. it offers an expected return of 15%, and it has a standard devaton of
9% if Sharon is risk averse; cain you say which investment she will choose? Why or why not? Are
there any investments that you are certain she will not choose? (Seleet then best answer below.)
A. If Sharon wore risk averse, it ia not clear whether sho would prefer investment W or X. F From
part (o) Sharon prefens X io Y and Z, but inveatmere Whas a iower. expected roturn and standard
doviation. Thus, Sharon's preference botween W and X will depend on whether the return
expecied on W is simitielen compensation for the extea investment. In other words, Sharon's
choice will depend on ber rigk tolecanco f(e, her degree of risk aversich) B. If Sharon were risk
overse, is not cloar whether she would prefer investment W or X. From part (b). Sharon profors X
to Y and Z, but imvestment W has a higher expected return and standard deviation. Thus,
Sharon's preferenco between W and X will depend on whether the extra return axpected on W is
sumitelent compensation for the exira risk. In other words. Sharon's cholce wil depend on her risk
tolerance (i.e, her degree of rak avenion) C. It Sharon were risk averse, is is not dear whether she
would prefer investment W or Z. From part (b), Sharon profors Z bo X and Y, but invesenent W
has a higher expected return and standard deviation. Thus, Sharon's preferonce between W and Z
will depend on whelhor the extra refum expected on W in wufficient componsation for tha extra
risk. In other words, Sharoers choice wil depend on hat risk lolerance (Le, her degree of tisk
aversion) D. If Sharon were nisk averse, it is not dear whether she would prefoc imesenent Wor Y.
From part (b). Sharon profors Y to X and Z but invostmeat W has a eompensabion foc the extra
risk. In other words, Sharpols choice will depend on her risk tolerance (fe, her degree of risk
aversice?Bluestone Metals, Inc., is a metal fabrication firm that manufactures profabricated metal
parts for customers in a variety of industries, The firm's motto is if you need it, can make it." The
CEO of Bluestone recently held a beard meeting duing which he said that the company has the
capability to build any of its products using a kean manufacturing model that aliowed the company
to keep irventory lovols low. As an investor, you have calculated some ratios to analyze the firmis
performance. Bluestone's current ratios and quick ratios for the past 6 years are shown in the
table below: What do you think of the CEO's claim that the firm's manufacturing process aloows is
to keep inventories low? (Hint is there a possible warning sign in the relationship between the two
ratios?) (Select all the answers that apply.) A. The current ratio provides a better measure of
overall liquidity only when a firm's invontory cannot be easily converled into cash. B. Since
inventory is included in the calculation of the current ratio, but not in the quick ratio, the ratios
indicate that inventory is increasing and Bluestone is not. operating in a lean manufacturing mode

2. C. As with any analysis using ratos, you thould investigote othar financial ratios for Bluestone to
further assass its financial health D. The current ratio is incretsing but the quick ratio is decining