Suppose That Paul and David from Problem 7 Have Utility

question 6

Multiple Choice

Suppose that Paul and David from Problem 7 have utility functions U = 4A_P + O_P and U = A_D + 5O_D, respectively, where A_P and O_P are Paul's consumptions of apples and oranges and A_D and O_D are David's consumptions of apples and oranges. The total supply of apples and oranges to be divided between them is 16 apples and 16 oranges. The "fair" allocations consist of all allocations satisfying

• A) A_D = A_P and O_D = O_P.
• B) 8A_P + 2O_P is at least 80 and 2A_D + 10O_D is at least 96.
• C) 4A_P + O_P is at least 80 and 2A_D + 5O_D is at least 96.
• D) A_D + O_D is at least 16 and A_S + O_S is at least 16.
• E) 4A_P + O_P is at least A_D + 5O_D and A_D + 5O_D is at least 4A_P + O_P.

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Definitions:

Fair Value Hedge

A hedge of the exposure to changes in fair value of an asset or liability or an identified portion of an asset or liability that is attributable to a particular risk.

Cash Flow Hedge

A form of hedge that aims to manage exposure to fluctuations in cash flows related to a particular risk, such as interest rates or foreign exchange rates.

Cash Flow Hedge

A type of hedge that protects against the exposure to variability in cash flows due to a particular risk such as interest rate changes.

Forward Rate

The predetermined price for a transaction that will occur at a specific future date, commonly used in foreign exchange and interest rate markets.