91.ManufacturersofWeightbegoneareconcernedthatgeneticadvancesinweightcontrolmightreducethedemandfortheirdietsnacks.Thisisanexampleof
a.firmspecificrisk,whichwilllikelyraiseshareholders’demandforhigherreturn.
b.firmspecificrisk,whichwilllikelynotlikelyraiseshareholders’demandforhigherreturn.
c.marketrisk,whichwilllikelyraiseshareholders’demandforhigherreturn.
d.marketrisk,whichwilllikelynotraiseshareholders’demandforhigherreturn.
92.Arisk-aversepersonhas
a.autilityfunctionwhoseslopegetsflatteraswealthrises.Thismeanstheyhaveincreasingmarginalutilityofwealth.
b.autilityfunctionwhoseslopegetsflatteraswealthrises.Thismeanstheyhavediminishingmarginalutilityofwealth.
c.autilityfunctionwhoseslopegetssteeperaswealthrises.Thismeanstheyhaveincreasingmarginalutilityofwealth.
d.autilityfunctionwhoseslopegetssteeperaswealthrises.Thismeanstheyhavediminishingutilityofwealth.
93.Theideaofinsurance
a.wouldnotappealtoarisk-averseperson.
b.is,otherthingsthesame,toreducetheprobabilityofafire,accident,ordeath.
c.istosharerisk.
d.istoprovideasurething,notagamble.
94.Whichofthefollowingactionsbestillustratesadverseselection?
a.Apersonpurposelychoosesbondsofcorporationswithhighdefaultriskbecauseofthehighreturns.
b.Apersondislikeslosing$400morethanhelikeswinning$400.
c.Afterobtainingautomobileinsuranceapersondriveslesscarefullythanbefore.
d.Apersonintendingtotakeupdangeroushobbiesappliesforlifeinsurance.
95.Whichofthefollowingbestillustratesdiversification?
a.Acompanythatproducesmanydifferentproductsdecidestoproducefewer.
b.Aftersellingstock,corporatemanagementspendsfundsonprojectswithgreaterrisksthanshareholdershadanticipated.
c.Insteadofholdingonlythestocksofcompaniesengagedinthebankingbusiness,apersondecidestoholdstockinanumberofdifferentcompaniesproducingdifferentgoodsandservices.
d.Apersondecidestopurchaseonlystocksthathavepaidhighdividendsinthepast.
96.Asthenumberofstocksinaportfoliorises,
a.bothfirm-specificrisksandmarketriskfall.
b.firm-specificrisksfall;marketriskdoesnot.
c.marketriskfalls;firm-specificrisksdonot.
d.neitherfirm-specificrisksnormarketriskfalls.
97.Ingeneral,asapersonincludesfewerstocksandmorebondsinhisportfolio,
a.bothriskandexpectedreturnrise.
b.riskrisesbutexpectedreturnfalls.
c.riskfalls,butexpectedreturnrises.
d.bothriskandexpectedreturnfall.
98.Peoplewhoholdwell-diversifiedportfoliosofstockshavegreatlyreducedoreliminated
a.firm-specificrisk,andsotheydonotneedtoworryabouttheirwealthdecreasingasaresultofrecessions.
b.marketrisk,andsotheydonotneedtoworryabouttheirwealthdecreasingasaresultofrecessions.
c.firm-specificrisk,butstilltheyhavereasontoworryabouttheirwealthdecreasingasaresultofrecessions.
d.marketrisk,butstilltheyhavereasontoworryabouttheirwealthdecreasingasaresultofrecessions.
99.IfCara’sutilityfallsmorebylosing$600thanitrisesbygaining$600,shehas
a.increasingmarginalutilityofwealthandisriskaverse.
b.increasingmarginalutilityofwealthbutisnotriskaverse.
c.decreasingmarginalutilityofwealthandisriskaverse.
d.decreasingmarginalutilityofwealthbutisnotriskaverse.
100.Diversifying
a.increasesthestandarddeviationofthevalueofaportfolioindicatingitsriskhasincreased.
b.increasesthestandarddeviationofthevalueofaportfolioindicatingitsriskhasdecreased.
c.decreasesthestandarddeviationofthevalueofaportfolioindicatingitsriskhasincreased.
d.decreasesthestandarddeviationofthevalueofaportfolioindicatingitsriskhasdecreased.
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