Question
Helen owns a floating rate bond. That is, the interest rate she receives can move up or down. She believes that in one year, when
Helen owns a floating rate bond. That is, the interest rate she receives can move up or down. She believes that in one year, when the bond is due, she will receive either $100 or $110. The probability of each outcome is 50%.
Helen sells the bond to Leah, who will pay Helen $103 in one year (at the same time the bond payment will occur for the bond's owner).
Based on this information, what is the best economic explanation for Helen's behavior?
Group of answer choices
Helen is more risk averse than Leah.
Helen is less risk averse than Leah.
Helen has irrational preferences.
Helen is price inelastic.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started