How much would a risk-neutral person be willing to pay

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Reference no: EM13922057

1. Critically evaluate the following statement: "Risk-averse people never take gambles."

2. Suppose that an investment can yield three possible cash flows: $5,000; $1,000; or $0. The probability of each outcome is 1/3.

a. What is the expected value and standard deviation of the investment?

b. How much would a risk-neutral person be willing to pay for the investment?

c. How much would a risk-averse person be willing to pay for the investment?

Reference no: EM13922057

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