Explain the term utility function and uses
Explain the term utility function and uses.
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The idea is not frequently used in practice in finance but is common in the literature, particularly economics literature. This utility function permits the ranking of the otherwise incomparable and it is used to describe people’s actions; rational people are supposed to act for that to increase their utility.
Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37% Preferred stock: Two thousand shares of preferred are outstanding,
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