Figure: Risk Aversion (Figure: Risk Aversion) Bob and Nancy Have the Same Income

question 44

Multiple Choice

Figure: Risk Aversion
(Figure: Risk Aversion) Bob and Nancy have the same income and the same total utility.The figure Risk Aversion shows their individual utility functions.Based upon this graph, which of the following is true?

• A)Nancy is more risk-averse than Bob because her marginal utility curve is flatter than Bob's marginal utility curve.
• B)Nancy is more risk-averse than Bob because her marginal utility curve is steeper than Bob's marginal utility curve.
• C)Bob is more risk-averse than Nancy because his marginal utility curve is steeper than Nancy's marginal utility curve.
• D)Bob is more risk-averse than Nancy because his marginal utility curve is flatter than Nancy's marginal utility curve.

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Definitions:

Government Of Canada

The federal administration and institutions of Canada, responsible for national policy and governance.

Inflation Premium (IP)

The premium added to the real risk-free rate of interest to compensate for the expected loss of purchasing power. The inflation premium is the average rate of inflation expected over the life of the security.

Default Risk Premium (DRP)

The additional yield that investors demand to compensate for the risk of default by the issuer of a bond beyond the risk-free rate.

Liquidity Premium (LP)

Liquidity Premium refers to the extra return investors demand to compensate for investing in securities with low liquidity or those difficult to sell quickly at market value.