7.2. An investor is considering five possible investment strategies. The investor cares only about the expected payoff and possibly the variance of each strategy. The following table shows the payoffs under bad luck and good luck and the associated probabilities.

Strategy Bad Luck Payoff Probability of Bad Luck Good Luck Payoff Probability of Good Luck A 4 0.6 9 0.4 B 5 0.3 5 0.7 C 2 0.5 12 0.5 D 4 0.8 11 0.2 E 3 0.7 10 0.3

a. Using a spreadsheet, determine the expected value and variance for each strategy.

b. Which strategy would be chosen by a risk-neutral investor? A risk-preferring investor?

c. If we know only that the investor is risk averse, can we rule out any strategies?