Assume an Investor with the Following Utility Function: U =

question 8

Multiple Choice

Assume an investor with the following utility function: U = E(r) − 0.60(s²) . To maximize her expected utility, which one of the following investment alternatives would she choose?

• A) A portfolio that pays 10% with a 60% probability or 5% with 40% probability.
• B) A portfolio that pays 10% with 40% probability or 5% with a 60% probability.
• C) A portfolio that pays 12% with 60% probability or 5% with 40% probability.
• D) A portfolio that pays 12% with 40% probability or 5% with 60% probability.

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Definitions:

Personal Property

Personal property is a category of property that includes movable items and possessions, as opposed to real property such as land or buildings.

Fixture

A thing that was originally personal property and that has been actually or constructively affixed to the soil itself or to some structure legally a part of the land.

Abandoned Property

Property that is left by its owner who has no intention of returning or claiming ownership.

Producing

The act of creating, manufacturing, or otherwise bringing into existence a product or service.