Question 1
Refer to the information provided in Figure 17.2 below to answer the question(s) that follow.
Refer to Figure 17.2. Suppose Sam's utility from income is given in the diagram. From this we would say that Sam is
◦ risk-neutral.
◦ risk-loving.
◦ risk-averse.
◦ a risk taker.
Question 2
Refer to the information provided in Figure 17.2 below to answer the question(s) that follow.
Refer to Figure 17.2. Sam has two job offers when he graduates from college. Sam 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 $30,000 plus a possible bonus of $60,000. Sam believes that he has a 50-50 chance of earning the bonus. If Sam takes the offer that maximizes his expected utility and is risk-neutral, which job offer will he choose?
◦ Sam will take the first offer.
◦ Sam will take the second offer.
◦ Sam is indifferent between the offers—both yield the same expected utility.
◦ Indeterminate from the given information.
How to calculate present value (Question 3)
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Figure 2.15.jpg