Rosie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years. Option C is a high-risk stock that is expected to be worth about $1,200 in four years. Rosie should choose
A)option A.
B)option B.
C)option C.
D)either option A or option B because Rosie is indifferent between those two options and they are superior to option C.

Question

Quizplus · Accepted Answer

As Rosie is risk-averse, option A, which is a risk-free government bond, is the best choice for her. Option B may provide her with a higher return, but it does carry some risk while option C is a high-risk investment and not suitable for her risk profile. Additionally, option A offers a guaranteed return, making it a more secure investment choice for Rosie.

Rosie Is Risk Averse and Has $1,000 with Which to Make