Assume an Investor with the Following Utility Function: U =

question 56

Multiple Choice

Assume an investor with the following utility function: U = E(r) - 3/2(s²) .
-To maximize her expected utility,she would choose the asset with an expected rate of return of _______ and a standard deviation of ________,respectively.

• A)12%; 20%
• B)10%; 15%
• C)10%; 10%
• D)8%; 10%
• E)none of the above

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Definitions:

Future Value

A prediction of what a current asset will be worth at a particular future date, using an assumed growth rate.

Discount Rate

The discount rate, in finance, is the interest rate used to determine the present value of future cash flows, influencing the attractiveness of investments.

Perpetuity

A financial instrument that provides a stream of indefinite cash flows, or payments, with no end date.

Interest Rate

Interest rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.