Assume an Investor with the Following Utility Function: U =

question 37

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%

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Definitions:

Issue Price

The price at which new or existing securities are offered for sale to the public.

Premium on Bonds Payable

The amount by which a bond's selling price exceeds its principal (face value), reflecting higher-than-market interest rates or low risk.

Par Value

A nominal value assigned to a security by the issuer, which may or may not reflect its actual market value.

Issue Price

The price at which new shares are offered to the public or bonds are sold, which may be above or below the par value.