A risk-averse investor has an opportunity to invest in the following securities:

		Security A costs $10 today and will have a value of $25 if the market goes up and $0 if the market goes down
		Security B costs $8 today and will have a value of $12 if the market goes up and $6 if the market goes down
		Security C costs $5 today and will have a value of $20 if the market goes up and -$20 if the market goes down.

If there is a 40% chance that the market will go up and the risk-free rate is zero, which security(ies) will the investor prefer?

Answer rating: 100% (QA)

To determine which security the riskaverse investor will prefer we need to calculate the expected value of each security and compare them Expected val... View the full answer