Question

# 5. Huong has the following utility function in terms of expected wealth (w) and the risk (thevariation of wealth, A). The following is her utility function for wealth (w) and

risk (A) u#(A,w) = She believes she the relationship between wealth and risk can be explained by the followingfeasible frontier (also called a risk-return schedule): w(A) = –2+ 6A – (A)² Choose the statements that are true among the following. a. Huong's marginal rate of substitution is mrs(A ,w) = –2A. b. Huong's marginal rate of substitution is mrs(A w) = 2A. c. Huong's constrained utility maximizing bundle of risk and wealth is (A= 2,w = 6). d. For Huong, risk is a good and wealth is a bad. e. Huong's constrained utility maximizing bundle of risk and wealth is321,W =4%3D f. For Huong, wealth is a good and risk is a bad. g. Huong's marginal rate of substitution is mrs(A,w) = -A. h. Huong's marginal rate of substitution is mrs(A, w) = A.

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