Assume an Investor with the Following Utility Function: U =

question 33

Multiple Choice

Assume an investor with the following utility function: U = E(r) - 3/2(s²) .To maximize her expected utility,which one of the following investment alternatives would she choose?

• A) A portfolio that pays 10 percent with a 60 percent probability or 5 percent with 40 percent probability.
• B) A portfolio that pays 10 percent with 40 percent probability or 5 percent with a 60 percent probability.
• C) A portfolio that pays 12 percent with 60 percent probability or 5 percent with 40 percent probability.
• D) A portfolio that pays 12 percent with 40 percent probability or 5 percent with 60 percent probability.
• E) none of these.

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Definitions:

Recidivism

The tendency of a convicted criminal to reoffend.

Rehabilitation

A process aimed at restoring someone's physical, sensory, intellectual, or mental capabilities that have been lost or diminished.

Offenses

Acts that are prohibited by law and are punishable upon conviction.

Indictment

A formal charge or accusation of a serious crime, typically presented by a grand jury.