A manager's utility function is identified to be a concave curve.Which of the following investment opportunities is likely to be chosen by him?
A) investment in a real estate company that promises attractive returns
B) venture capital to a small business, administered by a group of young entrepreneurs
C) a bond issued by the federal government that offers guaranteed interest of 2 percent
D) investing in a large corporation that is planning to extend its business overseas

Question

Quizplus · Accepted Answer

A concave utility function implies that the manager is risk-averse and prefers stable and guaranteed returns. Therefore, the investment in a bond issued by the federal government, which offers a guaranteed interest of 2 percent, is likely to be chosen as it provides a low-risk investment opportunity with a stable return. The other options, such as investing in a real estate company or venture capital to a small business, involve higher risks and are less likely to be chosen by a risk-averse manager with a concave utility function.

A Manager's Utility Function Is Identified to Be a Concave