To Maximize Her Expected Utility, Which One of the Following

question 19

Multiple Choice

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

• A) A portfolio that pays 10% with a 60% probability or 5% with 40% probability.
• B) A portfolio that pays 10% with 40% probability or 5% with a 60% probability.
• C) A portfolio that pays 12% with 60% probability or 5% with 40% probability.
• D) A portfolio that pays 12% with 40% probability or 5% with 60% probability.

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, giving them ownership stakes and typically the right to vote on corporate matters.

Principals

Principals typically refer to the main parties involved in a transaction or operation, such as the owners or chief stakeholders of a company.

Agents

Individuals or entities authorized to act on behalf of others, typically in financial transactions or negotiations.

Primary Market Transaction

A primary market transaction involves the initial issuance and sale of securities directly from the issuer to investors, as opposed to secondary market trading where investors buy and sell securities among themselves.