An Investor Is Faced with the Option of Putting Money

question 4

Multiple Choice

An investor is faced with the option of putting money into a savings account with a 2% interest rate that is guaranteed or a stock account that has a higher expected return rate of 6% but is not guaranteed. The investor chooses the stock account because they enjoy the excitement of the possibility of a higher payoff. This is an example of

• A) risk-aversion and discounting.
• B) neutrality only.
• C) risk-sensitivity.
• D) discounting only.
• E) risk-sensitivity and being risk-prone.

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