Answers
Option C is correct. Risk averse person is the one who is reluctant to take risk. An investor who prefers lower returns with known risks rather than higher returns with unknown risks.
In outcome 1, probability is 0.5. The increase in value of A $10 * 0.50 = $5. And decrease in value of B = $10 * 0.50 = -$5. Therefore the expected payoff is zero.
In outcome 2, probability is also 0.5.
The decrease in value of A = $5 * 0.5 = -$2.5. And increase in value of B = $5 * 0.5 = $2.5. In this case also, the expected pay off is zero.
This option is to be best for the investor, as if he is not gaining from the investment also he is not loose anything. While with the other options at the end he left with the uncertainty og gaining or loosing.
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