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Understand the risk-reward tradeoff

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Reference no: EM132730110

Suppose a consultant has configured two potential proposals A and B for a client. Proposal A has an estimated average future profit of $5 million while project B is estimated to future profit of $3.5 million on average. The 5% value at risk (VaR) of proposals A and B are 2.5 million and $3 million, respectively. The consultant wonders which option to present and how. Choose the best answer.

Proposal A if the client is risk averse

Proposal B if the client is risk averse

Flip a coin

Understand the risk-reward tradeoff and plot a pareto curve that shows possible alternatives, including proposals A and B

Reference no: EM132730110

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