Question

Assuming you are risk​ neutral, first answer the following two questions about your​ preferences: Scenario​ A: You are given​ $5,000 and offered a choice between receiving an extra​ $2,500 with certainty or flipping a coin and getting​ $5,000 if heads or​ $0 if tails. Which option do you​ prefer? A. Both options have identical​ payoffs, so I am indifferent between the two options. B. The possibility of the​ $5,000 payoff is more valuable to me than the certain​ $2,500, I choose to flip a coin. C. The certain​ $2,500 is more valuable than the uncertain​ $5,000, I would choose the​ $2,500.

Answer 1

Answer:

B. The possibility of the​ $5,000 payoff is more valuable to me than the certain​ $2,500, I choose to flip a coin.

Explanation:

A risk neutral person is a person that is indifferent to risk. She doesn't consider risk when making an investment risk.

Because the possibility of earning $5000 is greater than earning $2500, a risk averse person would choose to toss a coin.

A risk neutral person contrasts with a risk averse person who avoids risk. A risk averse person would choose the $2500 because there's no risk .

I hope my answer helps you