Question

Tom is a college student at FSU. He has the option to buy a parking pass at the beginning of the year for $250. If Tom doesn’t buy the pass, he has to park on the street or pay the valet parking service $5 per day. If Tom does not buy the parking pass, he expects to have to use the valet parking services 40 times. However, he may end up using the valet service up to 80 times. Tom decides that he would rather pay the $250 than risk not being able to find a spot on the street. Tom could be described as which of the following.

Answer 1

Answer:

Risk Averse investor

Explanation:

A risk-averse investor is an investor who seeks lower returns with known risks, instead of higher returns with unknown risk.

Since Tom, does not want to risk the options of not finding a parking space or having to pay an excess of $5 a day, he opt to take the $250 yearly that has little to no risk.

In certain terms, this investor often chooses the alternative or option with the least interest from different investments offering the same return with different levels of risks.