You Have Invested $1,000 in a Stock Whose Price Is

question 47

Essay

You have invested $1,000 in a stock whose price is increasing at 10 percent a year.Your stock broker, who is never wrong, recommends a stock rising at 20 percent a year.Assuming the broker earns 4 percent of the stock's value on any purchase or sale of the stock, should you take her recommendation?

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Definitions:

Nuts

Typically refers to edible seeds enclosed in a hard shell, often considered both a source of nutrition and a staple in various cuisines.

Berries

Small, pulpy, and often edible fruits, typically juicy, rounded, brightly colored, and sweet or sour in taste.

Utility Function

A mathematical representation of how a consumer's preferences over a set of goods and services translates into an assessment of the utility or satisfaction derived from each bundle of consumption.

Indifference Curve

A graph representing different combinations of two goods that provide a consumer with the same level of satisfaction or utility.