Kedran Is Indifferent Between Option A, Which Gives Her $10,000

question 75

Multiple Choice

Kedran is indifferent between option A, which gives her $10,000 for sure, and option B, which gives her $5,000 with probability 0.4 or $15,000 with probability 0.6. Kedran's cost of risk for option B is

• A) zero.
• B) $1,000.
• C) $5,000.
• D) $10,000.

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Definitions:

T-bill

Short-term debt obligations issued by the U.S. government, known for their safety and liquidity, typically maturing in one year or less.

Secondary Market

A marketplace where previously issued financial instruments such as stocks, bonds, options, and futures are bought and sold.

Corporate Bond

A type of debt security issued by corporations to finance their operations, expansions, or other expenditures, offering periodic interest payments and the return of the principal at maturity.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuer's equity shares at certain times during its life, usually at the discretion of the bondholder.