An individual has a utility of money function U = 20 +.5M and considers two options:
Option 1: Invest $100,000 in a building plot, which will be sold for $150,000 if interest rates decrease or for $80,000 the interest rates do not change.
Option 2: Invest the same $100,000 in bonds, which will be worth $135,000 if interest rates decrease, and $100,000 if the interest rates remain the same.
The consensus among economic forecasters is that interest rates have an 80% chance of decreasing and 20% chance of remaining constant.
Which investment option will this individual select?

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The Answer of An individual has a utility of money function U = 20 +.5M and considers two options:
Option 1: Invest $100,000 in a building plot, which will be sold for $150,000 if interest rates decrease or for $80,000 the interest rates do not change.
Option 2: Invest the same $100,000 in bonds, which will be worth $135,000 if interest rates decrease, and $100,000 if the interest rates remain the same.
The consensus among economic forecasters is that interest rates have an 80% chance of decreasing and 20% chance of remaining constant.
Which investment option will this individual select?

An Individual Has a Utility of Money Function U =