Consider the Following Scenario When Answering the Following Questions

question 50

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 C,which has an expected value of ________,over Gamble D,which has an expected value of ________.

• A) $0.5 million; $1 million
• B) $0.5 million; $0.11 million
• C) $0.11 million; $1 million
• D) $1 million; $0.11 million
• E) $5 million; $1 million

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