A condition whereby investors are assumed to always prefer higher levels to lower levels of terminal wealth is known as
A) marginal utility
B) normally distributed returns
C) nonsatiation
D) covariance

Question

Quizplus · Accepted Answer

Nonsatiation is the assumption that investors always prefer more wealth to less wealth, which means that they have an increasing marginal utility of wealth. This assumption is fundamental in many areas of finance and economics, including portfolio theory and consumer choice theory. Marginal utility (choice A) is related to the study of how people derive satisfaction from consuming goods and services, but it does not capture the idea of always preferring more wealth. Normally distributed returns (choice B) refers to the assumption that returns on assets follow a Gaussian distribution, which is a statistical concept that is not directly related to investor preferences. Covariance (choice D) is a measure of the linear dependence between two random variables, which is also not directly related to the assumption of nonsatiation.

A Condition Whereby Investors Are Assumed to Always Prefer Higher