Tim Is Offered Two Gambles

question 36

Multiple Choice

Tim is offered two gambles.With gamble A,he either gains $2 or loses $1 with a 50 percent probability.With gamble B,he either gains $3 or loses $2 with a 50 percent probability.Tim prefers gamble B to gamble A.What can we conclude?

• A) Tim is risk loving.
• B) Tim is risk neutral.
• C) Tim is risk averse.
• D) Insufficient information to determine.

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Definitions:

Listing Requirements

The set of conditions imposed by a stock exchange on companies that want to list their shares for trading, which may include financial thresholds and corporate governance standards.

Clientele Effect

A theory suggesting that the stock price movements of a company are influenced by the tax preferences and dividend policies preferred by its current shareholders.

Information Content Effect

The impact of news announcements on stock prices, reflecting changes in investor perceptions.

Efficient Markets Hypothesis

The theory that financial markets are "efficient" in reflecting information about the prices of securities, meaning that existing share prices always incorporate and reflect all relevant information.