Suppose That Romeo Has the Utility Function U = S⁵_RS¹_J

question 23

Multiple Choice

Suppose that Romeo has the utility function U = S⁵_RS¹_J and Juliet has the utility function U = S¹_RS⁵_J, where S_R is Romeo's spaghetti consumption and S_J is Juliet's. They have 48 units of spaghetti to divide between them.

• A) Juliet would want to give Romeo some spaghetti if she had more than 38 units.
• B) Romeo would want to give Juliet some spaghetti if he had more than 24 units of spaghetti.
• C) Romeo and Juliet would never disagree about how to divide the spaghetti.
• D) Romeo would want to give Juliet some spaghetti if he had more than 36 units of spaghetti.
• E) Juliet would want to give Romeo some spaghetti if she had more than 40 units of spaghetti.

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Definitions:

Cash Flow Hedge

A type of hedge that protects against the variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction.

Fair Value Hedge

A type of hedge that is used to mitigate the risk of changes in the fair value of an asset or liability.

Net Investment

The purchase of capital assets minus depreciation, representing the total amount invested in assets for generating income.

Recognised Asset

An item of economic value that is accounted for and reported on a company's financial statements, meeting specific recognition criteria.