Suppose That,in an Experimental Setting,100 Students Are Asked to Choose

question 135

Multiple Choice

Suppose that,in an experimental setting,100 students are asked to choose between Gamble A and Gamble B,where:
Gamble A: The student will receive $5 million with a 100% probability.
Gamble B: The student will receive $5 million with a 50% probability,$10 million with a 25% probability,and $0 million (nothing) with a 25% probability.
A risk-neutral student is:

• A) likely to choose Gamble A because it has a higher expected value.
• B) likely to choose Gamble B because it has a higher expected value.
• C) likely to choose Gamble A because the student will win something (as opposed to nothing) with a higher probability.
• D) likely to choose Gamble B because the student will win something (as opposed to nothing) with a higher probability.
• E) indifferent toward both Gambles A and B because they have the same expected value.

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Definitions:

Private Placements

Sale of securities to a small number of investors.

Debt Capital

Financing acquired through borrowing that must be repaid at a later date, typically with interest.

Private Placements

A means of raising capital through the sale of securities to a relatively small number of select investors rather than through a public offering.

Corporate Debt Issues

refer to the financial obligations or borrowings taken on by companies, typically through the issuance of bonds, loans, or commercial paper.