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Question
Which of the following actions best illustrates adverse selection?a. A person purposely chooses bonds of corporations with high default risk because of the high returns.
b. A person dislikes losing $400 more than he likes winning $400.
c. After obtaining automobile insurance a person drives less carefully than before.
d. A person intending to take up dangerous hobbies applies for life insurance.
Answer
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Related questions
Q:
Which of the following best illustrates diversification?
a. A company that produces many different products decides to produce fewer.
b. After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated.
c. Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services.
d. A person decides to purchase only stocks that have paid high dividends in the past.
Q:
Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
Q:
A risk-averse person has
a. a utility function whose slope gets flatter as wealth rises. This means they have increasing marginal utility of wealth.
b. a utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth.
c. a utility function whose slope gets steeper as wealth rises. This means they have increasing marginal utility of wealth.
d. a utility function whose slope gets steeper as wealth rises. This means they have diminishing utility of wealth.
Q:
David increases the number of companies in which he holds stocks.
a. This reduces risk's standard deviation and firm-specific risk.
b. This reduces risk's standard deviation and market risk.
c. This raises market risk, but lowers firm-specific risk. What happens to overall risk is unclear.
d. This raises firm-specific risk, but lowers market risk. What happens to overall risk is unclear.
Q:
Angela reads financial advice columns and concludes the following. Which, if any, of her conclusions are incorrect?
a. Higher average returns come at the price of higher risk.
b. People who are risk averse should never hold stock.
c. Diversification cannot eliminate all of the risk in stock portfolio.
d. None of her conclusions are incorrect.
Q:
An increase in the number of corporations in a portfolio from 110 to 120 reduces
a. market risk by more than an increase from 1 to 10.
b. market risk by less than an increase from 1 to 10.
c. firm-specific risk by more than an increase from 1 to 10.
d. firm-specific risk by less than an increase from 1 to 10.
Q:
Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
Q:
Which of the following is a source of market risk?
a. Holding stocks in many companies carries the risk of a reduced average return.
b. Real GDP varies over time and sales and profits move with real GDP.
c. When a paper producer has declining sales, it is likely that so will other paper producers.
d. If stockholders become aggravated with the way a CEO runs a company, the price of that company's stock
might fall in the stock market.
Q:
At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?
a. 3
b. 4
c. 5
d. 7
Q:
A decrease in government spending and the enactment of an investment tax credit would definitely cause
a. the quantity of loanable funds traded to increase.
b. the interest rate to increase.
c. the quantity of loanable funds traded to decrease.
d. the interest rate to decrease.
Q:
Figure26-5.Figure 26-5 shows the loanable funds market for a closed economy.RefertoFigure26-5.Starting at point A, a reduction in government spending would causea. the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point C).b. the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point B).c. the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% (point D).d. the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point E).
Q:
Which of the following statements is correct?
a. NASDAQ is an important stock exchange in the United States.
b. The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes.
c. The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued.
d. All of the above are correct.
Q:
Figure26-5.Figure 26-5 shows the loanable funds market for a closed economy.RefertoFigure26-5.Starting at point A, a change in tax laws that encouraged households to save more would likely causea. the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point D).b. the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point C).c. the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point B).d. the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point E).
Q:
Other things the same, the effects of an increase in transfer payments on the government's budget deficit will lead to
a. greater investment.
b. a higher interest rate.
c. higher public saving.
d. All of the above are correct.
Q:
About what percentage of jobs are destroyed every year, and about what percentage of workers leave their jobs in a typical month?
a. 1% and 5%
b. 5% and 1%
c. 3% and 10%
d. 10% and 3%
Q:
Which of the following is notamong the four industries with the largest employment in the United States today?
a. lumber
b. aircraft
c. communications
d. electrical components
Q:
Frictional unemployment is inevitable because
a. sectoral shifts are always happening.
b. there is a federal minimum-wage law in the U.S.
c. some people do not want to be employed.
d. unions are very popular in the U.S.
Q:
Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has gradually decreased.
a. True
b. False
Q:
A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?
Q:
A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.
Q:
Figure27-1. The figure shows a utility function.RefertoFigure27-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there,a. she would be willing to accept a coinflip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails."b. the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth.c. the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth.d. the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.
Q:
Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?
Q:
Suppose you place $500 into a savings account that will pay you 6% interest per year. What will be the future value of the savings account in 15 years?
Q:
Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?
Q:
If Joanna is risk averse, then
a. her utility function exhibits the property of decreasing utility.
b. her utility function exhibits the property of increasing marginal utility.
c. she dislikes bad things more than she likes comparable good things.
d. she is unlike most people, because most people are notrisk averse.
Q:
If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?
Q:
A payment of $10,000 is to be made in the future. The interest rate 3%. Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?
Q:
Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?
Q:
List three different ways that a risk-averse person can reduce financial risk.
Q:
You are better off choosing $400 in 4 years rather than $300 today if the interest rate is
a. lower than about 5.5 percent.
b. higher than about 5.5 percent.
c. lower than about 7.5 percent.
d. higher than about 7.5 percent.