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:

Bureaucratic Organisation

An organization structured on formal procedures, hierarchy, and a clear division of labor, which emphasizes control and standardization.

Max Weber

A German sociologist, philosopher, and political economist known for his theory on the structure of authority and his analysis of bureaucracy.

Performance Deficiencies

Situations where an individual's or organization's performance falls below an established standard or expectation.

Psychological Deficiency

A lack or shortage in psychological wellbeing, possibly related to cognitive, emotional, or social aspects of a person's life.