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6 December, 14:51

Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is risk averse, which investment will he prefer?

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  1. 6 December, 14:55
    0
    First one

    Explanation:

    1) $1100

    2) 0.5 (1000) + 0.5 (1200)

    = $1100

    3) 0.5 (200) + 0.5 (2000)

    = $1100

    Since all expected values are equal.

    He should go for the first one, to avoid risks
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Home » Business » Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is risk averse, which investment will he prefer?
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