Billy Has a Von Neumann-Morgenstern Utility Function U(c)= C^1/2

question 22

Multiple Choice

Billy has a von Neumann-Morgenstern utility function U(c) = c^1/2.If Billy is not injured this season, he will receive an income of 4 million dollars.If he is injured, his income will be only 10,000 dollars.The probability that he will be injured is .1 and the probability that he will not be injured is .9.His expected utility is

• A)100,000 dollars.
• B)1,810 dollars.
• C)3,620 dollars.
• D)between 3 and 4 million dollars.
• E)7,240 dollars.

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Definitions:

Balance Sheet

A ledger entry that captures the financial position of a business, enumerating assets, liabilities, and the stake of shareholders at an exact moment.

Original Investments

The initial amount of money or value of assets put into a business or project by its founders or investors.

Net Income

The total earnings of a company after subtracting all expenses, including taxes and operating costs, from its total revenues.

Salary Allowances

Benefits or extra compensation provided to employees on top of their regular salary, often for specific purposes such as transportation, housing, or meals.