Barney's Sailboat Is Destroyed in an Unusual Accident

question 126

Multiple Choice

Barney's sailboat is destroyed in an unusual accident.The sailboat,which he used for personal purposes,caught fire forcing him and his friends to jump ship and swim for shore.The boat exploded and sank.Barney purchased the boat in 1998 for $75,000.At the time that it is destroyed,the boat has a value of $45,000.Barney's insurance company pays him $25,000 in full settlement of this loss.Barney's adjusted gross income is $60,000.If this is his only casualty loss during the year,what amount can he deduct as a casualty loss?

• A)$13,900
• B)$14,000
• C)$19,900
• D)$44,900
• E)None of the above.

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Definitions:

Capital Allocation Line

A line on a graph that shows the risk-reward ratio of different portfolios, helping investors understand their options for achieving a desired balance.

Risk-averse Investors

Investors who prefer to minimize uncertainty and potential loss in their investment choices, often opting for safer, more predictable investments.

Optimal Risky Portfolio

The combination of investments that provides the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Expected Utility

A theory in economics that assesses the utility or satisfaction an agent expects to receive from different outcomes, taking into account their risk preferences.