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 prefer a guaranteed return of 5% over a risky investment with a potential 80% chance of gaining 20% or a 20% chance of losing 40%. This is because a risk-averse investor prioritizes avoiding losses over gaining higher returns.

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