Question
I. Uncertainty (Chapter 12) I1. Ruby-Mae Tyson is a widow whose primary income is provided by earnings received from her husband's R2,000,000 estate. The table
I. Uncertainty (Chapter 12) I1. Ruby-Mae Tyson is a widow whose primary income is provided by earnings received from her husband's R2,000,000 estate. The table below shows the relationship between income and total utility for Ruby-Mae. Income Total Utility 50,000 12 100,000 22 150,000 30 200,000 36 250,000 40 300,000 42 I1.1 Construct the marginal utility table for Ruby-Mae. What is her attitude toward risk? Explain your answer including a description of the marginal utility for individuals whose risk preferences are different from Ruby-Mae's. [2] I1.2 Ruby-Mae is currently earning 10% on her R2,000,000 in a riskless investment. Alternatively, she could invest in a project that has a 0.4 probability of yielding a R300,000 return on her investment and a 0.6 probability of paying R100,000. Should she alter her strategy and move her R2,000,000 to the more risky project? [3]
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