The Assumptions Concerning the Shape of Utility Functions of Investors

question 3

Multiple Choice

The assumptions concerning the shape of utility functions of investors differ between conventional theory and prospect theory. Conventional theory assumes that utility functions are __________, whereas prospect theory assumes that utility functions are __________.

• A) concave and defined in terms of wealth; s-shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth
• B) convex and defined in terms of losses relative to current wealth; s-shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth
• C) s-shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth; concave and defined in terms of wealth
• D) s-shaped (convex to losses and concave to gains) and defined in terms of wealth; concave and defined in terms of losses relative to current wealth
• E) convex and defined in terms of wealth; concave and defined in terms of gains relative to current wealth

Analyze and interpret financial statements to assess the financial health of a business.

Prepare an income statement and calculate net income or net loss for a given period.

Prepare a statement of owner's equity to reflect changes in owner's equity over time.

Understand the classification of business transactions as operating, investing, or financing activities in the statement of cash flows.

---

Definitions:

Holland Scales

A theory and assessment tool that categorizes vocational interests into six types to help individuals identify suitable career paths.

Big Five Dimension

A model that outlines five major dimensions of human personality: openness, conscientiousness, extraversion, agreeableness, and neuroticism.

Holland's RIASEC

A theory of careers and vocational choice based upon personality types, with the six types being Realistic, Investigative, Artistic, Social, Enterprising, and Conventional.

Career Type

Refers to the various classifications of occupations based on similar job duties, industries, and interests.