101.Apersonwhoisriskaversemightaccepta50%chanceoflosing$100todayinexchangefora50%chanceofwinning$125intwoyearsiftheinterestratewas a.9%butnot10% b.10%butnot11% c.11%butnot12% d.Noneoftheaboveiscorrect;ariskaversepersonwouldnotacceptanyoftheabovebets. 102.Supposeinterestof5%fortwoyearscanbeearnedon$1,000savedtodaywithnorisk.Whatistheleastamountapersonwouldneedtohavea50%chanceofwinningtobewillingtofacea50%chanceoflosing$1,000todayandbeconsideredriskaverse? a.$907.03tobepaidintwoyears b.$1,000.01tobepaidintwoyears c.$1,100.01tobepaidintwoyears d.$1,102.51tobepaidintwoyears 103.Byholdinginsuranceaperson a.reducestheriskofabadoutcome,suchastheirhouseburningdown. b.sharesriskandsoreducestheburdenofrisk. c.BothAandBarecorrect. d.NeitherAnorBarecorrect. 104.Considerthefollowingtwosituations.Ireneacceptsajobwhereshewillbedrivingindangeroustraffic,sosheseeksautoinsurance.AfterVictorbuyshealthinsurance,hevisitsthegymlessfrequently.Whichoftheseperson’sactionsillustratesmoralhazard? a.bothIrene’sandVictor’s b.Irene’sbutnotVictor’s c.Victor’sbutnotIrene’s d.neitherVictor’snorIrene’s 105.Whichofthefollowingmake(s)insurancepremiumshigherthanotherwise? a.adverseselectionandmoralhazard b.adverseselection,butnotmoralhazard c.moralhazard,butnotadverseselection d.neitheradverseselectionnormoralhazard 106.Abankmightmakemortgagestopeopleindifferentregionsofthecountry.Bydoingso a.thebankreducestheriskitfacesfromfallinghousepricesinitsregionandfallingpricesinallregions. b.thebankreducestheriskitfacesoffallinghousepricesinitsregionbutnotfromfallingpricesinallregions. c.thebankreducestheriskitfacesoffallinghousepricesinallregions,butnottheriskitfacesfromfallinghousepricesinitsregions. d.thebankreducesneithertheriskitfacesfromfallinghousepricesinitsregionnorfallingpricesinallregions. 107.Samanthaholdsstocksinfourcompanies.Ifsheaddsstocksofseveralmorecompaniesshewilldecrease a.firmspecificriskandmarketrisk. b.firmspecificriskbutnotmarketrisk. c.marketriskbutnotfirmspecificrisk. d.neitherfirmspecificnormarketrisk. 108.SupposethatAlbertcanbuyabondfor$1,000thatmaturesintwoyearsandpaysAlbert$1,102.5withcertainty.Heisindifferentbetweenthisbondandonethathassomeriskbutonwhichtheinterestrateis3%higher.Howmuch,tothenearestpenny,doestheriskierbondpayintwoyears? a.$1,160.00b.$1,166.40c.$1,168.65d.$1,169.64 109.Bydiversifying,theriskofholdingstock a.canbeeliminated.Onaverageoverthepasttwocenturiesstockspaidahigheraveragerealreturnthanbonds. b.canbeeliminated.Onaverageoverthepasttwocenturiesstockspaidaloweraveragerealreturnthanbonds. c.canbereducedbutnoteliminated.Onaverageoverthepasttwocenturiesstockspaidahigheraveragerealreturnthanbonds. d.canbereducedbutnoteliminated.Onaverageoverthepasttwocenturiesstockspaidaloweraveragerealreturnthanbonds. 110.Ifastockorbondisrisky a.riskaversepeoplemaybewillingtoholditaspartofadiversifiedportfolio. b.riskaversepeoplemaybewillingtoholditiftheexpectedreturnishighenough. c.bothAandBarecorrect. d.riskaversepeoplewillnotholdit.