Fred Kruger is indifferent between return rates satisfying R = 0.10 + (-0.01) $\sigma$,where $\sigma$ measures risk.Fred is:
A) risk-averse and profit maximizing.
B) risk-averse and not profit maximizing.
C) risk loving and profit maximizing.
D) risk loving and not profit maximizing.
E) risk-neutral.

Question

Fred Kruger is indifferent between return rates satisfying R = 0.10 + (-0.01) $\sigma$,where  $\sigma$ measures risk.Fred is:
A) risk-averse and profit maximizing.
B) risk-averse and not profit maximizing.
C) risk loving and profit maximizing.
D) risk loving and not profit maximizing.
E) risk-neutral.

Quizplus · Accepted Answer

Fred's indifference equation shows he prefers higher risk ($\sigma$) with lower returns, indicating he is risk-loving and not focused on maximizing profit.

Fred Kruger Is Indifferent Between Return Rates Satisfying R = σ\sigmaσ

Fred Kruger Is Indifferent Between Return Rates Satisfying R = $\sigma$