Miss Abubakar and Mr. Daniels have a risk-aversion index of 3 and 2, respectively. They are evaluating a risky portfolio with E(r_p) = 15% and _p = 18%.

Required:

1. The risk aversion index of Miss Abubakar and Mr. Daniels suggests that they are both risk-averse. True or false Explain [2 points]
2. Which client is likely to assign a lower utility value and why. [2.5 points]
3. Why will a risk-averse investor reject a gamble?