AAFM Exam GLO_CWM_LVL_1 Topic 1 Question 99 Discussion

Actual exam question for AAFM's GLO_CWM_LVL_1 exam

Question #: 99
Topic #: 1

A Treasury bill pays a 6% rate of return. A risk averse investor __________ invest in a risky portfolio that pays 12% with a probability of 40% or 2% with a probability of 60% because __________.

AMight; she is rewarded a risk premium

BWould not; because she is not rewarded any risk premium

CWould not; because the risk premium is small

DCannot be determined

Show Suggested Answer

Suggested Answer: C

by Rima at Feb 10, 2025, 12:33 AM

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Providencia

I agree with Alease. The key here is that the investor is risk-averse, so they're not going to take on that level of risk without a substantial risk premium. B is the correct answer.

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Catarina

8 days ago

Hmm, I'm not so sure. The risk premium might be small, but the potential upside of 12% seems enticing. I'm leaning towards C.

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Alease

12 days ago

I think the answer is B. The risk-averse investor would not invest in the risky portfolio because she is not being rewarded for the additional risk.

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Craig

12 days ago

But what if the risk premium is small? Would that change the investor's decision?

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Ceola

22 days ago

I agree with Ressie. The risk premium is important for risk averse investors to consider before making investment decisions.

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Ressie

24 days ago

I think a risk averse investor would not invest in a risky portfolio that pays 12% with a probability of 40% or 2% with a probability of 60% because she is not rewarded any risk premium.

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