51.GiventhatTamarisarisk-averseperson,shemightacceptabetwitha50percentchanceoflosing$100todayifshehada50percent
a.chanceofwinning$120intwoyearsandtheinterestratewas11%.
b.chanceofwinning$114intwoyearsandtheinterestratewas7%.
c.chanceofwinning$110intwoyearsandtheinterestratewas3%.
d.Noneoftheabovearecorrect;ariskaversepersonwouldnotacceptanyoftheabovebets.
52.Risk
a.canbereducedbyplacingalargenumberofsmallbetsratherthanasmallnumberoflargebets.
b.canbereducedbyincreasingthenumberofstocksinaportfolio.
c.BothAandBarecorrect.
d.NeitherAnorBarecorrect.
53.Thelast$2,000ofRolanda’swealthaddslesstoherutilitythantheprevious$2,000.Basedonthisinformation,
a.increasingmarginalutilityofwealthandisriskaverse.
b.increasingmarginalutilityofwealthandisnotriskaverse.
c.decreasingmarginalutilityofwealthandisriskaverse.
d.decreasingmarginalutilityofwealthandisnotriskaverse.
54.Recently,Lisa’swealthincreasedby$500.Ifherwealthweretoincreasebyanother$500inthenearfuture,thenherutilitywouldincrease,butnotbyasmuchasitincreasedwiththerecentincreasetoherwealth.Basedonthisinformation,Lisa’sutilityfunction
a.andmarginalutilityfunctionarebothupwardsloping.
b.andmarginalutilityfunctionarebothdownwardsloping.
c.isupwardslopingandhermarginalutilityfunctionisdownwardsloping.
d.isdownwardslopingandhermarginalutilityfunctionisupwardsloping.
55.SupposethatThomexperiencesagreaterlossinutilityifheloses$50thanhewouldgaininutilityifhewins$50.
a.marginalutilitydiminishesaswealthrises,sohemustberiskaverse.
b.marginalutilitydiminishesaswealthrises,butwecan’ttellfromthisifheisriskaverse.
c.marginalutilityincreasesaswealthrises,sohemustberiskaverse.
d.marginalutilityincreasesaswealthrises,butwecan’ttellfromthisifheisriskaverse.
56.Whichofthefollowingdefinesanannuity?
a.Forafee,aninsurancecompanyprovidesyouwithregularincomeuntilyoudie.
b.Asurchargeisaddedtolife-insurancepremiumspaidbypersonsindangerousoccupations.
c.Annuityisanothernameforstockfundsmanagedbymutualfundmanagers.
d.Annuityisanothernameforanydiversifiedportfolio.
57.Roryreceives,fromaninsurancecompany,apaymentof$5,000eachyear,andhewillcontinuetoreceivethesepaymentsuntilhedies.Thisseriesofpaymentsiscalleda(n)
a.portfolio.
b.bond.
c.dividend.
d.annuity.
58.Ineffect,anannuityprovidesinsurance
a.againsttheriskofdyingandleavingone’sfamilywithoutaregularincome.
b.againsttheriskoflivingtoolong.
c.topeoplewhoarenotrisk-averse.
d.topeoplewhoseutilityfunctionsdonotdisplaytheusualproperties.
59.Whichofthefollowingactionsbestillustratesadverseselection?
a.Apersonaddsriskystocktohisportfolio.
b.Apersonwhohasnarrowlyavoidedmanyaccidentsappliesforautomobileinsurance.
c.Apersonisunwillingtobuyastockwhenshebelievesitspricehasanequalchanceofrisingorfalling$10.
d.Apersonpurchaseshomeownersinsuranceandthencheckshissmokedetectorbatterieslessfrequently.
60.Whichofthefollowingactionsbestillustratesmoralhazard?
a.Apersonaddsriskystocktohisportfolio.
b.Apersonwhohasnarrowlyavoidedmanyaccidentsappliesforautomobileinsurance.
c.Apersonisunwillingtobuyastockwhenshebelievesitspricehasanequalchanceofrisingorfalling$10.
d.Apersonpurchaseshomeownersinsuranceandthencheckshissmokedetectorbatterieslessfrequently.
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