Question :
111.Fromthestandpointoftheeconomyasawhole,theroleof
a.theinterestrateistomakesurethatthepriceofbondsincreasesovertime.
b.diversificationistoeliminatemarketrisk.
c.insurancei : 1261869
111.Fromthestandpointoftheeconomyasawhole,theroleof
a.theinterestrateistomakesurethatthepriceofbondsincreasesovertime.
b.diversificationistoeliminatemarketrisk.
c.insuranceistoreducetherisksinherentinlife.
d.insuranceistospreadrisksaroundmoreefficiently.
112.Whichofthefollowingstatementsiscorrect?
a.Ahigh-riskpersonismorelikelytoapplyforinsurancethanalow-riskpersonbecauseahigh-riskpersonwouldbenefitmorefrominsuranceprotection.
b.Alow-riskpersonismorelikelytoapplyforinsurancethanahigh-riskpersonbecausealow-riskpersonwouldbenefitmorefrominsuranceprotection.
c.Insurancecompaniescanfullyguardagainsttheproblemofadverseselection,buttheycannotfullyguardagainsttheproblemofmoralhazard.
d.Insurancecompaniescanfullyguardagainsttheproblemofmoralhazard,buttheycannotfullyguardagainsttheproblemofadverseselection.
113.KaylafacesrisksandshepaysafeetoABCCompany;inreturn,ABCCompanyagreestoacceptsomeorallof
a.amutualfund.
b.aninsurancecompany.
c.adiversifiedcompany.
d.anequity-financedcompany.
114.Lori,whocurrentlyownsstockinfourcompanies,hasdecidedtoexpandherportfoliobypurchasingstockinvirtuallyeverycompanythatsellsstock.In doingso,Loriwill
a.increasetheriskofherportfolio.
b.decreasesome,butnotall,oftheriskofherportfolio.
c.decreasealloftheriskofherportfolio.
d.leavetheriskofherportfoliounchangedfromitspresentlevel.
115.Whichofthefollowingpairsofportfoliosexemplifiestherisk-returntradeoff?
a.ForPortfolioA,theaveragereturnis6percentandthestandarddeviationis15percent;forPortfolioB,theaveragereturnis6percentandthestandarddeviationis25percent.
b.ForPortfolioA,theaveragereturnis5percentandthestandarddeviationis15percent;forPortfolioB,theaveragereturnis8percentandthestandarddeviationis15percent.
c.ForPortfolioA,theaveragereturnis5percentandthestandarddeviationis25percent;forPortfolioB,theaveragereturnis8percentandthestandarddeviationis15percent.
d.ForPortfolioA,theaveragereturnis5percentandthestandarddeviationis15percent;forPortfolioB,theaveragereturnis8percentandthestandarddeviationis25percent.
116.Theriskofaportfolio
a.increasesasthenumberofstocksintheportfolioincreases.
b.isusuallymeasuredusingastatisticcalledthestandarddiversification.
c.ispositivelyrelatedtotheaveragereturnoftheportfolio.
d.bearsnorelationshiptotheaveragereturnoftheportfolio.
117.StockholdersofComfortAirCorporation,anairconditionerandfurnacemanufacturer,areconcernedthatthecompaniesexecutivesmaytakeongreaterrisksthanstockholdersdesire.Thisexampleillustrates
a.moralhazardandmarketrisk.
b.moralhazardandfirmspecificrisk.
c.adverseselectionandmarketrisk.
d.adverseselectionandfirmspecificrisk.
118.Johnhasbeenaskydiverformanyyears.WhenthecompanyJohnworksforoffersitsemployeestheoptiontopurchasealifeinsurancepolicy,Johnpurchasesapolicy.Thisillustratestheproblemof
a.moralhazard.
b.adverseselection.
c.risk-returntradeoff.
d.diversification.
119.SupposethatJohncanbuyasavingsbondfor$500thatmaturesintenyearsandpaysJohn$1,000withcertainty.Heisindifferentbetweenthisbondandanother$500bondthathassomeriskbutonwhichtheinterestrateis5%higher.Howmuch,tothenearestpenny,doestheriskierbondpayintenyears?
a.$1,275.91b.$1,422.63c.$1,577.69d.$1,631.17