(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In this question, you were asked to compare the decision of purchasing the stock with putting the money in the bank.
(Description)
The following text is written:
You have 1000 dollars that you can invest. If you buy General Motors stock, then, in one year’s time: with a probability of 0.4 you will get 1 thousand 600 dollars; with a probability of 0.4 you will get 1 thousand 100 dollars; and with a probability of 0.2 you will get 800 dollars. If you put the money into the bank, in one year’s time you will get 1 thousand 100 dollars for certain.
b. Suppose you prefer putting your money into the bank to investing it in General Motors stock. What does that tell us about your attitude to risk?
(Speaker)
You have a choice between putting 1 thousand dollars in the bank and earning 1 thousand 100 dollars or a return of 100 dollars.
If you put the money in the bank, you will receive a return of 100 dollars.
(Description)
The following expression is written in the first row below the previous text:
1100 dollars tends to Certainty.
(Speaker)
The other option is to purchase stock in General Motors. If you spend 1 thousand dollars on General Motors stock, you will expect to earn 1 thousand 240 dollars or a return of 240 dollars.
(Description)
The following text is written in the second row:
Or.
The following text is written in the third row:
1240 dollars.
(Speaker)
But this payoff is conditional on three different outcomes. There is a 20 percent chance you may end up with 800 dollars. This makes this decision risky.
(Description)
The expression in the third row now is written as:
1240 dollars, tends to, Risky.
(Speaker)
The choice of placing the money in the bank account to avoid the 20 percent risk of a 200 dollars loss means the individual is risk averse.
(Description)
The expression in the first row now is written as:
1100 dollars, tends to, Certainty (Risk Averse). This expression is highlighted.