Based on the security market line, Robo-Tech stock has a required retu

Based on the security market line, Robo-Tech stock has a required return of 14% and Friendly
Insurance Company has a required return of 10%. Robo-Tech has a standard deviation of returns of
18%. Therefore,

A) the beta for Friendly must be greater than the beta for Robo-Tech because Friendly is the
better buy for a risk-averse investor.
B) Friendly must have a standard deviation of returns of less than 18% because Friendly is less
risky than Robo-Tech.
C) all rational investors will prefer Friendly over Robo-Tech.
D) for a well-diversified investor, Friendly is less risky than Robo-Tech.

ANSWER

D