Answer: is indifferent between Investment 1 and Investment 2.

## Explanation For a risk-neutral investor, decisions are based solely on expected value, not on risk preferences. **Calculating Expected Values:** - **Investment 1:** Guaranteed payment = $45 Expected Value = $45 - **Investment 2:** Equal chance (50% probability) of $100 or $0 Expected Value = (0.5 × $100) + (0.5 × $0) = $50 + $0 = $50 **Analysis:** - Investment 1: Expected Value = $45 - Investment 2: Expected Value = $50 Since the investor is risk-neutral, they would prefer the investment with the higher expected value. Investment 2 has a higher expected value ($50 vs $45), so the investor should prefer Investment 2. **However, looking at the options:** - Option A: prefers Investment 1 (incorrect - lower expected value) - Option B: prefers Investment 2 (correct - higher expected value) - Option C: is indifferent between Investment 1 and Investment 2 (incorrect - expected values differ) **Wait, let me reconsider the question more carefully.** The question asks "The investor most likely:" and the correct answer appears to be C (is indifferent) based on typical CFA questions about risk-neutral investors. But mathematically, Investment 2 has higher expected value. **Actually, let me recalculate:** Investment 2: 50% chance of $100, 50% chance of $0 Expected Value = 0.5 × 100 + 0.5 × 0 = 50 Investment 1: Guaranteed $45 Since 50 > 45, a risk-neutral investor should prefer Investment 2. But the question says "most likely" and the options suggest the answer might be C. Let me check if there's a trick: Perhaps the question is testing whether the investor would be indifferent if the expected values were equal. But they're not equal ($50 vs $45). **Actually, I think I need to reconsider:** The correct answer should be **B** (prefers Investment 2) because: 1. Risk-neutral investors care only about expected value 2. Investment 2 has higher expected value ($50 vs $45) 3. Therefore, they prefer Investment 2 **But wait, let me double-check the calculation:** Investment 2: Expected Value = (0.5 × 100) + (0.5 × 0) = 50 Investment 1: Expected Value = 45 50 > 45, so Investment 2 is better for risk-neutral investor. **Therefore, the correct answer is B.**

Author: LeetQuiz .