Question

. Your trusted friend and neighbor, an experienced geologist, is putting together a group of investors to fund an exploratory gold mining venture. The venture could pay back 50 to 100 times the investment if successful. If the mine is a bust, the entire investment is worthless. Your friend estimates the chance of success is only 20%. If you had the money, how much would you invest

Answer 1

Answer: Invest according to your risk appetite

Explanation:

The purpose of this question is to measure your risk appetite. There is therefore no right or wrong answer.

If you pick nothing, then you are very risk averse because you don't want to risk your salary on a venture with only a 20% chance of success.

If you would invest a month salary, you are not risk averse but you only have a moderate risk tolerance.

If you invest three months salary on a venture with a 20% chance of success, you have a high tolerance for risk.

If you take it a step further and invest six months salary, this shows that you have a very high risk tolerance.