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Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described
Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now. If Erik is a risk neutral investor, which investment will he prefer? Erik will be indifferent toward these options. Erik will choose option 1. Erik will choose option 2. Erik will choose option 3. In contrast, Erik's brother, Devin, is risk averse. Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer Option 3. Everything else remaining constant, Devin will prefer Option 2. Everything else remaining constant, Devin will prefer Option 1. None of the above
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