4. Risk aversion Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now. 1 2 Option Payoff One Year from Now 100% chance of receiving $1,100 50% chance of receiving $1,000 50% chance of receiving $1,200 50% chance of receiving $200 50% chance of receiving $2,000 3 of Erik is nisk averse, which investment will be prefer? The investor will choose option 1 The westor will choose option 2 The inwestor will choose option 3 The investor will be indifferent toward these options, In contrast to his brother Enk, Devin is a risk lover (or white seeking bhion which the following statements is true about Devin Everything else remaining constant, Devin will prefer option Everything else remaining constant, Devin will prefer option Option Payoff One Year from Now 1 2 100% chance of receiving $1,100 50% chance of receiving $1,000 50% chance of receiving $1,200 50% chance of receiving $200 50% chance of receiving $2,000 3 If Erik is risk averse, which investment will he prefer? O The investor will choose option 1. The investor will choose option 2. O The investor will choose option 3. The investor will be indifferent toward these options. In contrast to his brother Erik, Devin is a risk lover (or exhibits risk seeki Everything else remaining constant, Devin will prefer option 3. O Everything else remaining constant, Devin will prefer option 2. 2 08: Assignment - Risk and Rates of Return 100% chance of receiving $1,100 50% chance of receiving $1,000 50% chance of receiving $1,200 50% chance of receiving $200 50% chance of receiving $2,000 3 If Erik is risk averse, which investment will he prefer? The investor will choose option 1 The investor will choose option 2 The investor will choose option 3. The investor will be indifferent toward these options, In contrast to his brother Erik, Devin is a risk lover (or exhibits risk seeking behavior). Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer option 3. Everything he remaining constant, Devin will prefer option 2. Everything else remaining constant, Devin will prefer option 1 None of these options is preferred