AAFM Exam CWM_LEVEL_2 Topic 2 Question 51 Discussion

Actual exam question for AAFM's CWM_LEVEL_2 exam

Question #: 51
Topic #: 2

Section C (4 Mark)

The assumptions concerning the shape of utility functions of investors differ between conventional theory and prospect theory. Conventional theory assumes that utility functions are __________ whereas prospect theory assumes that utility functions are __________.

AConcave and defined in terms of wealth; s-shaped (convex to losses and concave to gains) and defined in terms of loses relative to current wealth

BConvex and defined loses relative to current wealth; s-shaped (convex to losses and concave to gains) and defined in terms of loses relative to current wealth

CS-shaped (convex to losses and concave to gains) and defined in terms of loses relative to current wealth; concave and defined in terms of wealth

DS-shaped (convex to losses and concave to gains) and defined in terms of wealth; concave and defined in terms of loses relative to current wealth

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Suggested Answer: A

by Lashaunda at Nov 16, 2022, 03:52 PM

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