A risk neutral person earning $30,000 per year would likely be willing to pay a year's worth of income for a 50-50 chance at winning $70,000.

Question

Quizplus · Accepted Answer

The risk neutral person would be willing to pay half of the expected value of the gamble, which is (0.5 x $70,000) + (0.5 x $10,000) = $40,000. Therefore, they would not be willing to pay a full year's worth of income ($30,000) for this gamble.

A Risk Neutral Person Earning $30,000 Per Year Would Likely