Assume an Investor with the Following Utility Function: U =

question 59

Multiple Choice

Assume an investor with the following utility function: U = E(r) - 3/2(s²) .
-To maximize her expected utility,which one of the following investment alternatives would she choose?

• A)A portfolio that pays 10 percent with a 60 percent probability or 5 percent with 40 percent probability.
• B)A portfolio that pays 10 percent with 40 percent probability or 5 percent with a 60 percent probability.
• C)A portfolio that pays 12 percent with 60 percent probability or 5 percent with 40 percent probability.
• D)A portfolio that pays 12 percent with 40 percent probability or 5 percent with 60 percent probability.
• E)none of the above.

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Definitions:

Selling Price

The amount of money for which a product or service is sold in the market.

Normally Distributed

A statistical term describing data that follows a bell curve pattern, where most occurrences take place around the mean value.

Confidence Interval

A statistical range, with a given probability, that is likely to contain the true value of an unknown parameter.

Small-Company Stocks

Shares of ownership in small-cap companies, often carrying higher risk but potentially offering higher returns compared to shares of larger corporations.