Will is risk averse and has $1,000 with which to make a financial investment.He has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Will should choose
A)option A.
B)option B.
C)option C.
D)either option A or option B because Will is indifferent between those two options and they are superior to option C.

Question

Quizplus · Accepted Answer

Since Will is risk averse, option A is the best choice for him as it is a risk-free government bond that offers a fixed return of 5 percent interest each year for two years. Option B and C both involve some level of risk, and even though option C has a higher expected return, it is also riskier as it is a high-risk stock that takes four years to reach its expected value. Therefore, option A offers the best balance between return and risk for Will's risk aversion.

Will Is Risk Averse and Has $1,000 with Which to Make