Harvey Habit Has a Utility Function U(c₁, C₂)= Min{c₁

question 21

Multiple Choice

Harvey Habit has a utility function U(c₁, c₂) = min{c₁, c₂}.If he had an income of $1,290 in period 1 and $860 in period 2 and if the interest rate were 15%, how much would Harvey choose to spend on bread in period 1?

• A)$1,635
• B)$363.33
• C)$545
• D)$2,180
• E)$1,090

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Definitions:

ROE

Return on Equity; a measure of financial performance calculated by dividing net income by shareholders' equity.

EPS

Earnings Per Share; an indicator of a company's profitability, calculated as the company's net income divided by the number of its outstanding shares.

Capital Restructuring

Changing a firm’s capital structure intentionally by buying and selling stocks and bonds simultaneously.

Leverage

Leveraging borrowed money to enhance the expected gains from an investment.