Denote by "W" is the amount of wealth you are holding. Currently you have $5000. Consider a gamble where there is a half-chance of winning $1000 and a half-chance of losing $500. Assuming standard preferences, a risk neutral person will:
A) Accept this bet since the expected final wealth is $5250.
B) Reject this bet since (s)he wants to avoid the possibility of loss.
C) Accept this bet since the expected final wealth is $5000 and there is no possibility of loss.
D) Reject this bet since the expected final wealth is less than $5000.

Question

Quizplus · Accepted Answer

The expected final wealth is calculated as (0.5 * ($5000 + $1000)) + (0.5 * ($5000 - $500)) = $5250, making the bet attractive to a risk-neutral person who bases decisions on expected value.

Denote by "W" Is the Amount of Wealth You Are