An Individual Is Risk Neutral If Her Utility Curve for Wealth

question 24

Multiple Choice

An individual is risk neutral if her utility curve for wealth is:

• A)linear.
• B)concave.
• C)convex.
• D)decreasing.
• E)vertical.

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Definitions:

Exercise Price

The price at which the holder of an option can buy (in case of a call option) or sell (in case of a put option) the underlying security or commodity.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a certain time frame.

Exercise Price

The specified price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Risk-Free Rate

The return on investment of a risk-free asset, typically considered as government bonds, where the investor is assumed to have zero default risk.