Bob Views Apples and Oranges as Perfect Substitutes in His

question 28

Multiple Choice

Bob views apples and oranges as perfect substitutes in his consumption, and MRS = 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget is $30 per week. What is Bob's utility maximizing choice between these two goods?

• A) 4 pounds of apples and 6 pounds of oranges
• B) 5 pounds of apples and 5 pounds of oranges
• C) 10 pounds of oranges and no apples
• D) 15 pounds of apples and no oranges
• E) none of the above

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Definitions:

Portfolio Expected Return

The expected return on a portfolio is the weighted average of the anticipated returns of all the securities included in the portfolio, based on their proportions and expected performances.

Portfolio Required Return

The minimum expected return on an investment portfolio that an investor is aiming for, based on their investment goals and risk tolerance.

Beta

A measure of a stock's volatility in relation to the overall market, indicating its relative risk.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values; used in finance to quantify the risk associated with a security's return.