4. Risk aversion Erik is an investor with $5,000 available for investment. He has the following three investment possibilities from which to choose: Option Scenarios 1 Keep the $5,000 in cash for one year. 2 Invest in a friend's business with a 50% chance of getting $10,000 after one year and a 50% chance of getting nothing. Invest in a relative's business with a 30% chance of getting $15,000 after one year, 20% chance of getting $2,500 after one year, 50% chance of getting nothing. 3 Suppose Erik cares about the risk involved in Options 2 and 3, and decides to select Option 1 because it has no risk. Which of the following statements would be true about Erik? He is risk-averse. He is risk-neutral. O He is risk-loving None of these descriptions is accurate.
