need the answer

1.Suppose you have just inherited $10,500 and are considering different options for investing the money to maximize your return.

If you arerisk-neutral (thatis, neither seek out or shy away fromrisk), which of the following options should you choose to maximize your expectedreturn?

A.

Hold the money in cash and earn zero return.

B.

Invest the money in a corporatebond, with a stated return of 5%, but there is a chance of 10% the company could go bankrupt.

C.

Loan the money to one of yourfriends' roommates,Mike, at an agreed upon interest rate of 7%, but you believe there is a 7% chance that Mike will leave town without repaying you.

D.

Put the money in aninterest-bearing checkingaccount, which earns 3%. The FDIC insures the account against bank failure.

2.

Suppose the only possibility is to loan the money to one of yourfriends' roommates. If you could pay your friend $50 to find out extra information about Mike that would indicate with certainty whether he will leave town without paying ornot, would you pay the $50?

A.

No, itisn't worthit, because itdoesn't change your expected return and keeps the downside risk at the same level.

B.

Yes, it is worthit, but only if Mike stays in town and pays back the loan.

C.

Yes, it is worthit, because it increases your expected return and reduces the downside risk that the loan will default.

D.

No, itisn't worthit, because the money paid to your friend increases your costs and it cuts your expected return.

3.

What does the previous answer say about the value of better information regardingrisk?

A.

Paying a small amount to get better information regarding riskdoesn't bring benefits.

B.

Paying a small amount of money is inefficient in cases of moral hazard.

C.

Paying a small amount to improve risk assessment can be very beneficial.

D.

A problem created by asymmetric informationcan't be solved with money.