Question

Hi, hoping that someone can help me figure out if these examples are risk averse, seeking, neutral, or not enough info. Thanks!

C. The risk free rate is 4%. I'm willing to pay up to $170 for a box that will pay $100 next period with probability 20%, and $200 next period with probability 80% d. I'm willing to pay up to $180 for the box from part e. The price today of a zero-coupon, $1000 FV, 5 year treasury is 814.0694. I'm willing to pay up to $146.5325 for a box that will pay $100 in 5 years with probability 20%, and $200 in 5 years with probability 80%

Answer 1

Ans 1
	Investment	Probability	Return required	Return amount	% return
Risk free rate	170	1	4%	6.8	4%
Risk Prosopsal	170	0.2	100	20	5.9%
		0.8	200	160
				180	Risk averse , since higher risk higher retun
Ans 2
	Investment	Probability	Return required	Return amount	% return
Risk free rate	180	1	4%	7.2	4%
Risk Prosopsal	180	0.2	100	20	5.6%
		0.8	200	160
				180	Risk seeking since higher risk has not yielded higher return
Ans 3
	Investment	Interst	closing	Return( risk free)
Risk free	814.0694	185.9306	1000	0.2284
	Investment	Probability	Return required	Return amount	% return
Risk proposal	146.5325	0.2	100	20
		0.8	200	160	0.228396
				180	Risk seeking since higher risk has not yielded higher return as return is lower than risk free rate