31.RefertoFigure27-5.Supposetheverticaldistancebetweenthepoints(0,A)and(0,B)is12.Ifhiswealthincreasedfrom$1,300to$1,800,then
a.Dexter’ssubjectivemeasureofhiswellbeingwouldincreasebylessthan12units.
b.Dexter’ssubjectivemeasureofhiswellbeingwouldincreasebymorethan12units.
c.Dexterwouldchangefrombeingarisk-aversepersonintoapersonwhoisnotriskaverse.
d.Dexterwouldforgotheinsuranceheboughtwhenhiswealthwas$1,300.
32.RefertoFigure27-5.SupposeDexterbeginswith$1,300inwealth.Startingfromthere,
a.thepainoflosing$500ofhiswealthwouldequalthepleasureofadding$500tohiswealth.
b.thepainoflosing$500ofhiswealthwouldexceedthepleasureofadding$500tohiswealth.
c.thepleasureofadding$500tohiswealthwouldexceedthepainoflosing$500ofhiswealth.
d.Thiscannotbedeterminedfromthegraph.
33.Fromthestandpointoftheeconomyasawhole,theroleofinsuranceis
a.toenticerisk-lovingpeopletobecomeriskaverse.
b.topromotethephenomenonofadverseselection.
c.nottoeliminatetherisksinherentinlife,buttospreadthemaroundmoreefficiently.
d.nottospreadrisks,buttoeliminatethemforindividualpolicyholders.
34.Theproblemofmoralhazardarisesbecause
a.lifeisfullofallsortsofrisks.
b.afterpeoplebuyinsurance,theyhavelessincentivetobecarefulabouttheirriskybehavior.
c.ahigh-riskpersonismorelikelytoapplyforinsurancethanisalow-riskperson.
d.insurancecompaniesgotogreatefforttoavoidpayingclaimstotheirpolicyholders.
35.Asthenumberofstocksinaperson’sportfolioincreases,
a.theriskoftheportfolioincreases,asindicatedbytheincreasingvalueofthestandarddeviationoftheportfolio.
b.theriskoftheportfolioincreases,asindicatedbythedecreasingvalueofthestandarddeviationoftheportfolio.
c.theriskoftheportfoliodecreases,asindicatedbytheincreasingvalueofthestandarddeviationoftheportfolio.
d.theriskoftheportfoliodecreases,asindicatedbythedecreasingvalueofthestandarddeviationoftheportfolio.
36.Thelargestreductioninaportfolio’sriskisachievedwhenthenumberofstocksintheportfolioisincreasedfrom
a.80to100.
b.40to80.
c.10to20.
d.1to10.
37.Diversificationofaportfolio
a.caneliminatemarketrisk,butitcannoteliminatefirm-specificrisk.
b.caneliminatefirm-specificrisk,butitcannoteliminatemarketrisk.
c.increasestheportfolio’sstandarddeviation.
d.isnotnecessaryforapersonwhoisriskaverse.
38.MaryBethisriskaverseandhas$1,000withwhichtomakeafinancialinvestment.Shehasthreeoptions.OptionAisarisk-freegovernmentbondthatpays5percentinteresteachyearfortwoyears.OptionBisalow-riskstockthatanalystsexpecttobeworthabout$1,102.50intwoyears.OptionCisahigh-riskstockthatisexpectedtobeworthabout$1,200infouryears.MaryBethshouldchoose
a.optionA.
b.optionB.
c.optionC.
d.eitherAorBbecausetheyarethesametoher.
39.Ameasureofthevolatilityofavariableisits
a.presentvalue.
b.futurevalue.
c.return.
d.standarddeviation.
40.Arisk-averseperson
a.hasautilitycurvewheretheslopeincreaseswithwealth,andmighttakeabetwitha80percentchanceofwinning$300anda20perchanceoflosing$300.
b.hasautilitycurvewheretheslopeincreaseswithwealth,andwouldnevertakeabetwitha80percentchanceofwinning$300anda20percentchanceoflosing$300.
c.hasautilitycurvewheretheslopedecreaseswithwealth,andmighttakeabetwitha80percentchanceofwinning$300anda20perchanceoflosing$300.
d.hasautilitycurvewheretheslopedecreaseswithwealth,andwouldnevertakeabetwitha80percentchanceofwinning$300anda20percentchanceoflosing$300.
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