Figure 14-3

question 41

Multiple Choice

Figure 14-3. The figure shows a utility function for Rob.
-Refer to Figure 14-3. From the appearance of Rob's utility function, we know that

• A)if Rob owns a house, then he definitely would buy fire insurance provided the cost of the insurance were reasonable.
• B)Rob would voluntarily exchange a portfolio of stocks with a high average return and a high level of risk for a portfolio with a low average return and a low level of risk.
• C)Rob is risk averse.
• D)Rob is not risk averse.

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Definitions:

Accounting Loss

The situation where a company's total expenses exceed its revenues, leading to a negative income figure in the financial statements.

Maturity Values

The amount that will be paid to the holder of a financial instrument at the time of its maturity, including principal and any accrued interest.

Market Rate

The prevailing interest rate available in the marketplace for securities or loans.