A company invests in a risky project that promises $100,000. It might also earn nothing. The probability of the project’s success is 10%. The company invests $10,000 in the project. Which of the following statements is TRUE? a. The absolute risk premium is $10,000. b. The company is risk-averse. c. The relative risk premium is 10% d. The company is risk-neutral.

Answer True/False to the following question.A risk is a statement about a probability.

When a firm is in financial distress, the shareholders have an incentive to Blank______.Multiple choice question.engage in activities that reduce riskinvest in safer projectsavoid investing in risky projectsinvest in risky projects

A Corporation must decide between two mutually exclusive projects. Both projects requirean initial spending of $100 million, and they generate cash ows that are independent of thegrowth of the economy.Project A has equal probability of four gross payos: $80 million, $100 million, $120 million,or $140 million.Project B has a 50/50 chance of paying either $90 million or $130 million.Assuming that the shareholders are all risk-averse, prove that they unanimously prefer projectB to project A.1

Which of the following statements about risk aversion is TRUE?a.Risk aversion will always lead to a negative outcome.b.Ambitious people with power that can be taken away are more susceptible to risk aversion.c.Preferring a 50/50 chance of winning $200 to a guaranteed win of $50 is an example of risk aversion.d.Both (b) and (c).

Which of the following statements about the ‘What is Risk?’ section of the lecture material based on the diagram below are TRUE:A risk-averse individual would always prefer A to B because they both offer the same expected reward while B has a higher level of risk than A.A risk-averse individual would always prefer A to C because A has a significantly lower level of risk than C.Question 2AnswerNeither of the statements are true (both are false)Only statement 1 is trueOnly statement 2 is trueBoth statements are true (neither are false)