1. Tom is deciding between two investments he could make. Both investments will cost him $20,000. Investment A has a 60% chance of having a present value of $25,000 and a 40% chance of having a present value of $20,000 a year from now. Investment B has a 75% chance of having a present value of $28,000 and a 25% chance of having a present value of $16,000 a year from now. Using expected present value only, which investment should Tom choose?

A. Investment A

B. Investment B

C. either one; both have the same expected present value

D. neither one, because both investments have an expected present value less than his original investment of $20,000

2. Andy is also deciding upon the same two investment choices that Tom has in the previous question. Andy chooses Investment B. Which statement below is true?

A. Tom is more risk-averse than Andy.

B. Andy is more risk-averse than Tom.

C. Tom and Andy are equally risk-averse despite choosing different investment projects.

D. They may be equally risk-averse, because they both chose Investment B.