Sally Kink Is an Expected Utility Maximizer with Utility Function

question 21

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 1,000, u(x) = 2x, and for x greater than or equal to 1,000, u(x) = 2,000 + x.

• A) Sally will be risk averse if her income is less than $1,000 but risk loving if her income is more than $1,000.
• B) Sally will never take a bet if there is a chance that it leaves her with wealth less than $2,000.
• C) Sally will be risk neutral if her income is less than $1,000 and risk averse if her income is more than $1,000.
• D) For bets that involve no chance of her wealth exceeding $1,000, Sally will take any bet that has a positive expected net payoff.
• E) None of the above.

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Definitions:

Income Recognition

The accounting principle that income should be recognized in the accounting period in which it is earned, irrespective of when the cash is received.

Initial Impairment Assessment

The first step in evaluating whether an asset's carrying amount exceeds its recoverable amount, indicating a potential impairment loss.

Intangible Asset

An asset that lacks physical substance but is identifiable and provides economic benefits to the owner, such as patents, trademarks, and copyrights.

Internal Recordkeeping

The process of maintaining all company records, including financial documents, employee information, and operational logs, primarily for internal use.