Consider the Following Scenario When Answering the Following Questions

question 121

Multiple Choice

Consider the following scenario when answering the following questions:
Suppose that,in an experimental setting,100 students are presented with two situations involving risk and return.The students are first asked to choose between Gamble A and Gamble B,where:
Gamble A: The student will receive $1 million with a 100 percent probability.
Gamble B: The student will receive $1 million with an 89 percent probability,$5 million with a 10 percent probability,and $0 million (nothing) with a 1 percent probability.
The students are then asked to choose between Gamble C and Gamble D,where:
Gamble C: The student will receive $5 million with a 10 percent probability.
Gamble D: The student will receive $1 million with an 11 percent probability.
-A student who is risk neutral would choose Gamble B,which has an expected value of ________,over Gamble A,which has an expected value of ________.

• A) $1.39 million; $1 million
• B) $1 million; $1.42 million
• C) $0.89 million; $1 million
• D) $1 million; $0.89 million
• E) $1.10 million; $1 million

---

Definitions:

Service Continuum

The range of offerings companies bring to the market, from the tangible to the intangible or the product-dominant to the service-dominant.

Tangible

Something that can be perceived by touch; having physical form or substance.

Intangible

Something that cannot be touched or physically measured, often relating to non-physical assets or values.

Inventory Carrying Costs

Expenses related to holding or storing inventory, including warehousing, insurance, depreciation, and opportunity costs.