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Homework answers / question archive / The following two assets and payout data are given below
The following two assets and payout data are given below. Asset A: Pays a return of $2,000 20% of the time and $500 80% of the time Asset B: Pays a return of $1,000 50% of the time and 5600 50% of the time If both assets can be acquired for the same price, as a risk-averse investor, you would prefer
Risk averse means you are reluctant to take risk. As such you will choose the option in which the probability of getting return will be higher.
In option A, There is a chance of getting higher return of 2000 but it's probability is very low and on the other hand, for option B, there is a 50-50 change of getting 1000 or 600. So, probability is higher.
Thus, you will prefer Asset B.
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