solution

Item A: You will get ¥1000 tomorrow with 100% probability.

Item B: You will get ¥100,000 tomorrow with 1% probability, but ¥0 with 99% probability.

1. A risk-averse investor will _______.

A multiple-choice question with one possible answer.

1. be indifferent between item A and B.
2. prefer Item B
3. prefer Item A

2. A risk-taking investor will _______.

A multiple-choice question with one possible answer.

1. prefer Item B
2. prefer Item A
3. be indifferent between item A and B.

3. A risk-neutral investor will _________.

A multiple-choice question with one possible answer.

1. prefer Item A
2. prefer Item B
3. be indifferent between item A and B.

4. The higher the risk, the higher the expected return stands on the premise of _________.

A multiple-choice question with one possible answer.

1. risk-neutral investors
2. risk-averse investors
3. risk-taking investors