Figure 19-2.The figure shows a utility function for Mary Ann.
-Refer to Figure 19-2.From the appearance of the utility function,we know that
A) if Mary Ann owns a house,she would not consider buying fire insurance.
B) Mary Ann would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 2 percent to a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent.
C) Mary Ann would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent to a portfolio of stocks with an average return of 6 percent and a standard deviation of 3 percent.
D) All of the above are correct.

Question

Figure 19-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 19-2.From the appearance of the utility function,we know that
A) if Mary Ann owns a house,she would not consider buying fire insurance. 
B) Mary Ann would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 2 percent to a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent. 
C) Mary Ann would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent to a portfolio of stocks with an average return of 6 percent and a standard deviation of 3 percent. 
D) All of the above are correct.

Quizplus · Accepted Answer

The utility function likely indicates risk aversion, meaning Mary Ann would prefer a portfolio with lower risk (standard deviation) for the same average return.