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?

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Definitions:

Young People

Individuals in their late childhood to early adulthood phase, often considered the future drivers of social, economic, and political change.

Democratic Elitism

A theory that democracy is inevitably ruled by a small number of elites or expert leaders despite the participation of the broader populace.

Elite Democrats

Influential members within the Democratic Party known for their power, status, or wealth.

Public Opinion

The collective attitudes, beliefs, or views of the adult population regarding issues or subjects of public interest.