CIMA BA2 · Chapter 9 · Question 5 of 11
A manager prefers an investment with a certain return of $50,000 to an alternative offering an equal chance of $0 or $110,000. What is the manager's attitude to risk most likely to be?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Risk averse
Explanation
The alternative has an expected value of 0.5 x $110,000 = $55,000, which is higher than the certain $50,000. Choosing the lower but certain amount shows a willingness to give up expected return to avoid risk, which is risk aversion. A risk-neutral manager would choose the higher expected value.
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