David's Utility Function If David's Current Wealth Is $61,000

question 186

Multiple Choice

David's Utility Function If David's current wealth is $61,000, then

• A) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse.
• B) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is not risk averse.
• C) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is risk averse.
• D) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is not risk averse.

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Definitions:

Five-Year Period

A span or timeframe that extends for five consecutive years.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows or the rate used by financial institutions for interbank lending and borrowing.

Present Value

The value today of a sum of money or future cash flows, taking into account a specific rate of return.

Future Cash Flow

The projected movement of money into and out of a business or investment over future periods.