It turned out that you do actually need a version at least as new as the version of the framework the assembly is written in.
Microsoft (R) .NET Framework Installation utility Version 2.0.50727.6387 Copyright (c) Microsoft Corporation. All rights reserved.
Exception occurred while initializing the installation: System.BadImageFormatException: Could not load file or assembly 'file:///C:\Program Files (x86)\example\example.exe ' or one of its dependencies. This assembly is built by a runtime newer than the currently loaded runtime and cannot be loaded.. Microsoft (R) .NET Framework Installation utility Version 2.0.50727.6387 Copyright (c) Microsoft Corporation. All rights reserved.