An investor is faced with the option of putting money into a savings account with a 2% interest rate that is guaranteed or a stock account that has a higher expected return rate of 6% but is not guaranteed. The investor chooses the stock account because they enjoy the excitement of the possibility of a higher payoff. This is an example of
A) risk-aversion and discounting.
B) neutrality only.
C) risk-sensitivity.
D) discounting only.
E) risk-sensitivity and being risk-prone.

Question

Quizplus · Accepted Answer

The investor's choice of the stock account over the guaranteed savings account indicates a preference for risk and excitement, demonstrating risk-sensitivity and being risk-prone.

An Investor Is Faced with the Option of Putting Money