Question 1
Refer to the information provided in Figure 17.2 below to answer the question(s) that follow.
Refer to Figure 17.2. We would say that Sam is risk neutral based on his
◦ utility from income.
◦ income potential.
◦ present income.
◦ past income.
Question 2
Refer to the information provided in Figure 17.2 below to answer the question(s) that follow.
Refer to Figure 17.2. Fiona has two job offers when she graduates from college. Fiona views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $60,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $80,000. Fiona believes that she has a 50-50 chance of earning the bonus. If Fiona takes the offer that maximizes her expected utility and she is risk-neutral, then
◦ she will take the first offer.
◦ she will take the second offer.
◦ she is indifferent between the offers—both yield the same expected utility.
◦ Indeterminate from the given information—we cannot say what she will do.
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