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An individual faces two alternatives for an investment: (1) Asset A has the following probability return schedule: Prob of return return 25% -10% 25% 0%

An individual faces two alternatives for an investment:

(1) Asset A has the following probability return schedule:

Prob of return return

25% -10%

25% 0%

25% 20%

25% 24%

(2) Asset B has a certain return of 5.0%.

What is the expect return for investment A?

Can we say whether or not a risk averse investor will have a definite preference for A or B? Explain your answer. (Hint: start with the expected value!)

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