If Al Is Risk Averse, as His Wealth Increases, His

question 202

Multiple Choice

If Al is risk averse, as his wealth increases, his total utility of wealth ________ and his marginal utility of wealth ________.

• A) increases; increases
• B) increases; decreases
• C) decreases; increases
• D) decreases; decreases

---

Definitions:

Tax Rate

The extent to which the government extracts a percentage of income as taxes from businesses or people.

Market Value

The current exchange rate for acquiring or disposing of a service or asset.

Bond Issue

A financial instrument issued by a corporation or government as a way of borrowing money, where the issuer promises to pay back the face value on a specific date, along with periodic interest payments.

Weighted Average Cost of Capital (WACC)

A calculation of a firm's cost of capital, weighted by the proportion of each component of capital, including debt and equity.