An Individual Has a Utility of Money Function U =

question 39

Essay

An individual has a utility of money function U = 20 +.5M and considers two options:
Option 1: Invest $100,000 in a building plot, which will be sold for $150,000 if interest rates decrease or for $80,000 the interest rates do not change.
Option 2: Invest the same $100,000 in bonds, which will be worth $135,000 if interest rates decrease, and $100,000 if the interest rates remain the same.
The consensus among economic forecasters is that interest rates have an 80% chance of decreasing and 20% chance of remaining constant.
Which investment option will this individual select?

Appreciate the role of new technology in gaining competitive advantage and operational efficiency.

Recognize the importance of specifying quality standards in procurement.

Understand the benefits of buying by performance or function.

Acknowledge the significance of supply management criteria such as quality, quantity, delivery, and cost.

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Definitions:

Full-Capacity Sales

The maximum level of sales that a company can achieve using its current operational capabilities, without incurring additional capital expenses.

Current Level

Refers to the present status or value of a particular metric or variable at the moment of analysis.

Total Liabilities

The sum of all financial obligations (debts and other liabilities) a company owes to outside parties.