Which of the following two investments would a risk seeker choose: Investment A with an expected outcome of $1000 and standard deviation of $500,or Investment B with an expected outcome of $1000 and standard deviation of $200?
A)Investment A because if Investment B is chosen the expected utility from the increase in spread of expected returns below $1000 outweighs the expected utility from the increase in spread of expected returns above $1000.
B)Investment A because it offers the chance of more wealth.
C)Investment A because the downside risk is greater.
D)Investment B because the downside risk is less.

Question

Quizplus · Accepted Answer

A risk seeker would choose Investment B because it offers a higher expected outcome with a lower standard deviation, indicating less risk. The higher standard deviation of Investment A may offer the chance for potentially greater returns, but a risk seeker would be willing to take on more risk in exchange for the possibility of higher returns. Therefore, Investment B is the preferred choice.

Which of the Following Two Investments Would a Risk Seeker