Figure 27-1 The Following Figure Shows a Utility Function for Ren

question 95

Multiple Choice

Figure 27-1
The following figure shows a utility function for Ren.
-Refer to Figure 27-1. From the appearance of the utility function, we know that

• A)if Ren owns a house, he would not consider buying fire insurance.
• B)Ren would prefer to hold a portfolio of stocks with an average return of 6 percent and a standard deviation of 1 percent to a portfolio of stocks with an average return of 6 percent and a standard deviation of 5 percent.
• C)Ren would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent to a portfolio of stocks with an average return of 6 percent and a standard deviation of 3 percent.
• D)Ren is not risk averse.

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Definitions:

Practical One

Refers typically to a person or approach that focuses on practical actions and solutions rather than theoretical or abstract ideas.

Aristotle

An ancient Greek philosopher and scientist, a student of Plato and teacher of Alexander the Great, known for his contributions to many fields of knowledge.

External Compulsion

A force or influence from outside oneself that pressures or obliges one to act in a certain way, often limiting personal freedom or choice.

Free Of Ignorance

The state of having knowledge or being aware, lacking the absence of understanding or awareness.