hariRaj

It is not suggested answer in the book I am going by. He is a BPT Investor. Read the first para on Pg 38. BPT uses a Probability weighting function. In BPT Investors construct a portfolio in layers and expectation of returns and attitudes toward risk vary between the layers.
So Given statement 1 - probability weighted expected return (For entire layer) is what he will use. So 4.9% is the number and not the minimum probability and return that you have shown above. An Entire layer would either be selected or rejected based on the E(R) seen (which is Prob * return in the particular level within the layer).
And last line in Pg 38  Risk Aversion of investor is taken into account by constraint that limits risk of failing to achieve the aspirational level of wealth. At 80% probability - he will not achieve the 5% aspirational return.
He needs to be able to select Layer 2 first to go by whatever else you are saying above.