Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. Which type of investor would prefer an investment with a guaranteed return of 5%?
A)risk loving investor
B)risk neutral investor
C)risk averse investor
D)risk is not relevant in this example

Question

Quizplus · Accepted Answer

A risk averse investor would opt for the guaranteed return of 5% over the uncertain outcomes of the stock rising by 20% or falling by 40%. This investor prioritizes the preservation of their initial investment and is willing to forgo potentially higher returns in exchange for a lower risk outcome.

Suppose There's an 80% Chance of a Stock Rising by 20