Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

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  1. d. $1,102.51 to be paid in two years

    Explanation:

    To calculate the given problem, we use the following method

    We are

    Rate( r) = 5% 0.5

    t = 2

    Amount = $1,00

    The least amount the person needs to have to to 50% of winning and 50% of losing is

    = $1,000 × 0.5×2

    =$1,102.51

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