Reading Assignment Class 5 Read the following questions. Each scenario has two choices, consider which option is rational investors' choice and which option is loss-averse investors' choice. Question 1: Suppose you make a plan to invest $50,000. You are presented with two alternatives. Which scenario would you rather have? a. Be assured that I'll get back my $50,000, at the very least even if I don't make any more money. b. Have a 50 percent chance of getting $70,000 and a 50 percent chance of getting $35,000. Question 2: Suppose you make a plan to invest $70,000. You are presented with two alternatives. Which scenario would you rather have?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Reading Assignment Class 5
Read the following questions. Each scenario has two choices, consider which option is
rational investors' choice and which option is loss-averse investors' choice.
Question 1: Suppose you make a plan to invest $50,000. You are presented with two alternatives. Which
scenario would you rather have?
a. Be assured that I'll get back my $50,000, at the very least even if I don't make any more money.
b. Have a 50 percent chance of getting $70,000 and a 50 percent chance of getting $35,000.
Question 2: Suppose you make a plan to invest $70,000. You are presented with two alternatives. Which
scenario would you rather have?
a. Know that I'll only be repaid $60,000, for sure.
b. Take a 50-50 gamble, knowing that I'll get back either $75,000 or $50,000.
Question 3: Choose one of these two outcomes:
a. An assured gain of $475.
b. A 25 percent chance of gaining $2,000 and a 75 percent chance of gaining nothing.
Question 4: Choose one of these two outcomes:
a. An assured loss of $725.
b. A 75 percent chance of losing $1,000 and a 25 percent chance of losing nothing.
Transcribed Image Text:Reading Assignment Class 5 Read the following questions. Each scenario has two choices, consider which option is rational investors' choice and which option is loss-averse investors' choice. Question 1: Suppose you make a plan to invest $50,000. You are presented with two alternatives. Which scenario would you rather have? a. Be assured that I'll get back my $50,000, at the very least even if I don't make any more money. b. Have a 50 percent chance of getting $70,000 and a 50 percent chance of getting $35,000. Question 2: Suppose you make a plan to invest $70,000. You are presented with two alternatives. Which scenario would you rather have? a. Know that I'll only be repaid $60,000, for sure. b. Take a 50-50 gamble, knowing that I'll get back either $75,000 or $50,000. Question 3: Choose one of these two outcomes: a. An assured gain of $475. b. A 25 percent chance of gaining $2,000 and a 75 percent chance of gaining nothing. Question 4: Choose one of these two outcomes: a. An assured loss of $725. b. A 75 percent chance of losing $1,000 and a 25 percent chance of losing nothing.
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