An increase in ROE would imply an increase in shareholder wealth. Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: A high ROE and high risk A high ROE and low risk

The correct answer is the second option: A high ROE and low risk.  

Explanation:

To begin with, the concept of "Return of Equity" or ROE refers to a measure used in the field of business that mainly focus in the relationship between the profits and the equity of the company and therefore that it shows how profitable the company is regarding the amount of its equity. Moreover, this measure  focus on the amount of dollars that the company gains regading the amount of equity that the company uses. Therefore that a rational investor is likely to prefer an investment option that has a high ROE and low risk at the time of taking the decision.

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