Bob Invests $75 in an Investment That Has a 50

question 81

Multiple Choice

Bob invests $75 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

• A) risk loving.
• B) risk neutral.
• C) risk averse.
• D) irrational.

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Definitions:

Pure Yield Pickup Swap

A strategy where an investor swaps out of one bond into another with the aim of achieving a higher yield.

Price Risk

The possibility that the value of a financial instrument or asset will fluctuate due to changes in market prices, affecting investors' returns.

Reinvestment Rate Risk

The risk that income from an investment will be reinvested at a lower rate than the original investment.

Time Horizon

The length of time an investor expects to hold an investment before taking money out.