1. Critically evaluate the following statement: "Risk-averse people never take gambles."
2. Suppose that an investment can yield three possible cash flows: $5,000; $1,000; or $0. The probability of each outcome is 1/3.
a. What is the expected value and standard deviation of the investment?
b. How much would a risk-neutral person be willing to pay for the investment?
c. How much would a risk-averse person be willing to pay for the investment?