If a T-bill pays 5 percent,which of the following investments would not be chosen by a risk-averse investor?
A) An asset that pays 10 percent with a probability of 0.60 or 2 percent with a probability of 0.40.
B) An asset that pays 10 percent with a probability of 0.40 or 2 percent with a probability of 0.60.
C) An asset that pays 10 percent with a probability of 0.20 or 3.75 percent with a probability of 0.80.
D) An asset that pays 10 percent with a probability of 0.30 or 3.75 percent with a probability of 0.70.
E) neither a nor b would be chosen.

Question

Quizplus · Accepted Answer

The expected return for option C is 4.75%, which is less than the T-bill's 5% return, making it unattractive to a risk-averse investor.

If a T-Bill Pays 5 Percent,which of the Following Investments