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.
Company A is a AAA-rated firm wanting to issue five-year FRNs. It determines that it can issue FRNs at six-month LIBOR + 1/8 percent or at the six-month Treasury-bill rate + ½ percent. Specified its asset structure, LIBOR is the preferred index. Comp
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