(Our thanks to Nils Hakansson, University of California, Berkeley, for providing this problem.)
wo widows, each with $10,000 to invest, have been advised by a trusted friend to put their money into a one-year real estate trust which requires a minimum investment of $10,000. They have been offered a choice of six trusts with the following estimated yields:
Before making up their minds, they have called on you for advice.
a) The first widow leaves you unsure as to whether she is risk averse. What advice can you give her?
b) The second widow shows definite risk aversion. What is your advice to her?