An investor estimates the expected return of option A to be $180,000 and its exp

Question

An investor estimates the expected return of option A to be $180,000 and its expected utility to be 400. The expected return of option B is $120,000, and its expected utility is 450. The investor should:

select option A because it has the higher expected return.

select option B because it has the higher expected utility.

select option A because 180,000/120,000 > 450/400.

be indifferent between option A and option B.

there is not enough information to answer this question.

select option A because it has the higher expected return.

select option B because it has the higher expected utility.

select option A because 180,000/120,000 > 450/400.

be indifferent between option A and option B.

there is not enough information to answer this question.

Explanation / Answer

The decision of investor will depend on the expected utility recieved from each option of the investor and not the expected return. Opton b gives an expected utility of 450 utils, which is more than utility obtained by option b. Therefore, the investor will choose option b.

Option B is correct.

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