Suppose a Decision Maker Has a Utility Function $U = \sqrt { I }$

question 62

Multiple Choice

Suppose a decision maker has a utility function $U = \sqrt { I }$ and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80. What is the expected utility of this lottery?

• A) 7.6
• B) 7.9
• C) 8.2
• D) 8.5

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Definitions:

Investing Activities

Financial activities related to the acquisition and disposal of long-term assets and other investments not considered as cash equivalents.

Financing Activities

Financial transactions primarily involved with funding the company and its capital structure, including issuing debt, paying off debt, and equity transactions.

Issuing Debt

The process in which a corporation or governmental entity raises funds by selling bonds, bills, or notes to investors with a promise to pay back the principal along with interest on a specified date.

Acquiring Investments

The process of allocating resources, usually money, to purchase financial assets in the hope of generating income or capital appreciation.