(See Problem 11

question 20

Multiple Choice

(See Problem 11.) Pete's expected utility function is , where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂. Pete is offered a choice between getting a sure payment of $Z or a lottery in which he receives $1,600 with probability .80 or $14,400 with probability .20. Pete will choose the sure payment if

• A) Z > 3,136 and the lottery if Z < 3,136.
• B) Z > 8,768 and the lottery if Z < 8,768.
• C) Z > 14,400 and the lottery if Z < 14,400.
• D) Z > 2,368 and the lottery if Z < 2,368.
• E) Z > 4,160 and the lottery if Z < 4,160.

---

Definitions:

Shareholder Scrutiny

The analysis and evaluation of a company's performance and governance by its shareholders, often to assess the effectiveness, policies, and strategic direction of management.

Terminal Growth Rate

The rate at which a company is expected to grow its dividends or free cash flow beyond the forecast period, into perpetuity, during valuation.

Multi Stage Growth Model

A valuation method that applies different rates of growth to a company's earnings or dividends over various time horizons.

Discount Rate

The interest rate used to determine the present value of future cash flows.