A risk-averse investor has an opportunity to invest in the following securities: Security A costs $10 today and will have a value of $25 if the market goes up and $0 if the market goes down; Security B costs $8 today and will have a value of $12 if the market goes up and $6 if the market goes down; and Security C costs $5 today and will have a value of $20 if the market goes up and -$20 if the market goes down.If there is a 40 percent chance that the market will go up and the risk-free rate is zero,which security(ies)will the investor prefer?

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11ea8229_34c1_886e_bbd8_f1bb1d86450f_TB1726_00 A risk-averse investor prefers investment B because to be induced to enter a risky situation,(s)he needs a risk premium.

A Risk-Averse Investor Has an Opportunity to Invest in the Following