A fair coin is flipped. If it lands heads the person receives $1.00. If it lands tails, the person receives $11.00. If the person is willing to pay $6.00 to take this gamble, they must be
a. risk-averse.
b. risk-neutral.
c. risk-preferring.
d. either risk-neutral or risk-preferring (not risk-averse).
d. either risk-neutral or risk-preferring (not risk-averse).
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A lender who is worried that its cost of funds might rise during the term of a loan it has made can hedge against this rise without eliminating the chance to profit from a decline in the cost of funds by
A) buying futures contracts on Treasury bills. B) selling futures contracts on Treasury bills. C) buying put options on Treasury bills. D) buying call options on Treasury bills.
If Ann's utility function is U = W0.5, and she invests in a business which can yield $6,400 with probability 1/5, and $3600 with probability 4/5, then her expected utility is
A) 80. B) 76. C) 64. D) 60.