An Investor Has the Following Utilities Corresponding to Various Possible

question 90

Multiple Choice

An investor has the following utilities corresponding to various possible returns on an investment:
$\begin{array}{|c|l|}\hline \text { Profit } &{\text { Utility }} \\\hline \$ 100,000 & 1 \\\hline \$ 75,000 & 0.9 \\\hline \$ 40,000 & 0.6 \\\hline \$ 0 & 0.25 \\\hline-\$ 5,000 & 0.10 \\\hline-\$ 10,000 & 0 \\\hline\end{array}$
-The investor is considering an investment with the following potential returns and the probability of these returns. $$\begin{array} { | c | l | } \hline { \text { Profit } } & \text { Probability } \\\hline \$ 100,000 & 0.1 \\\hline \$ 40,000 & 0.5 \\\hline - \$ 10,000 & 0.4 \\\hline\end{array}$$
What is the investor's expected utility for this investment?

• A)$26,000
• B)$40,000
• C)0.33
• D)0.4
• E)Cannot be determined.

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