U = E(r) - (A/2)s², Where a = 4 -Based on the Utility Function Above,which Investment Would You Select

question 53

Multiple Choice

U = E(r) - (A/2) s², where A = 4.0. $\begin{array}{lll}\underline{\text { Investment }} & \underline{\text { Expected Return E(r) }} &\underline{ \text { Standard Deviation }} \\1 & 0.12 & 0.3 \\2 & 0.15 & 0.5 \\3 & 0.21 & 0.16 \\4 & 0.24 & 0.21\end{array}$

-Based on the utility function above,which investment would you select?

• A)1
• B)2
• C)3
• D)4
• E)cannot tell from the information given

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Definitions:

Worksheet Entry

An adjustment recorded on a worksheet, which is not yet posted to formal accounting records, often used in the process of preparing financial statements.

Equity Method

An accounting technique used by companies to record their investments in other companies, wherein the investment is initially recorded at cost and subsequently adjusted to account for the investor's share of the investee's profits or losses.

Intra-entity Gross Profit

Gross profit arising from transactions within the same company, often requiring elimination during consolidation.

Cost of Goods Sold

The direct expenses related to the production of goods sold by a company, including materials and labor costs.