q2

Erik is an investor with $5,000 available for investment. He has the following three investment possibilities from which to choose: Option 1 2 3 Scenarios Keep the $5,000 in cash for one year. Invest in a friend's business with a 50% chance of getting $10,000 after one year and a 50% chance of getting nothing. Invest in a relative's business with a 30% chance of getting $15,000 after one year, 20% chance of getting $2,500 after one year, 50% chance of getting nothing. Suppose Erik cares about the risk involved in options 2 and 3, and decides to select option 1 because it has no risk. Which of the following statements would be true about Erik? He is risk-averse. He is risk-neutral. He is risk-loving. hese descriptions is accurate. 27 Suppose Erik cares about the risk involved in options 2 and 3, and decides to select option 1 because it has no risk. Which of the following statements would be true about Erik? He is risk-averse. He is risk-neutral. O He is risk-loving. O None of these descriptions is accurate. Later, while examining the same investment alternatives, Erik's brother, Devin, clearly expressed a preference for option 1. Which of the following statements is true about Devin? He is risk-averse. He is risk-neutral. He is risk-loving. None of the above