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:

Autonomy

The capacity to make an informed, uncoerced decision independently, often discussed in the context of moral, ethical, or legal decision making.

Negligent

Failing to take proper care in doing something, often leading to harm or damage as a result of this carelessness.

Authoritarian

Pertaining to a system of government or leadership style that emphasizes strict obedience to authority at the expense of personal freedom.

Permissive

A parenting style characterized by low demands with high responsiveness, where parents are lenient and often only step in when there is a serious problem.