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