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Describe the shape of the utility function of a risk averse person.

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Its slope ...

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How does adverse selection affect the insurance market?

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High risk persons ar...

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What is the future value of $500 one year from today if the interest rate is 6 percent?


A) $515
B) $520
C) $530
D) None of the above is correct.

E) A) and B)
F) B) and D)

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At which interest rate is the present value of $95.40 one year from today equal to $90 today?


A) 4 percent
B) 5 percent
C) 6 percent
D) 7 percent

E) B) and D)
F) B) and C)

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Adverse selection is illustrated by people who take greater risks after they purchase insurance.

A) True
B) False

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People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

A) True
B) False

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A firm has four different investment options. Option A will give the firm $10 million at the end of one year, $10 million at the end of two years, and $10 million at the end of three years. Option B will give the firm $5 million at the end of one year, $10 million at the end of two years, and $15 million at the end of three years. Option C will give the firm $15 million at the end of one year, $10 million at the end of two years, and $5 million at the end of three years. Option D will give the firm $21 million at the end of one year, nothing at the end of two years, and $9 million at the end of three years. Which of these options has the highest present value if the rate of interest is 5 percent?


A) Option A
B) Option B
C) Option C
D) Option D

E) B) and C)
F) All of the above

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You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,125 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,200 two years from today. In order for the same interest rate to apply to the two loans, X =


A) $1,853.55.
B) $1,898.70.
C) $1,948.79.
D) $2,012.22.

E) A) and B)
F) All of the above

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According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?


A) about 3.5 years
B) about 6.3 years
C) about 12 years
D) about 14 years

E) None of the above
F) B) and C)

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If the interest rate is 4.5 percent, what is the present value of a payment of $500 to be made one year from today?


A) $457.14
B) $468.02
C) $478.47
D) None of the above are correct to the nearest cent.

E) A) and D)
F) B) and C)

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Figure 27-2. The figure shows a utility function for Britney. Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept? A) If it is heads, she wins $100; if it is tails, she loses $95. B) If it is heads, she wins $150; if it is tails, she loses $150. C) If it is heads, she wins $150; if it is tails, she loses $140. D) She definitely would not accept any of these bets. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?


A) If it is "heads," she wins $100; if it is tails, she loses $95.
B) If it is "heads," she wins $150; if it is tails, she loses $150.
C) If it is "heads," she wins $150; if it is tails, she loses $140.
D) She definitely would not accept any of these bets.

E) None of the above
F) A) and B)

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Vince says that the present value of $500 to be received one year from today if the interest rate is 8 percent is more than the present value of $500 to be received two years from today if the interest rate is 4 percent. Terri says that $500 saved for two years at an interest rate of 3 percent has a larger future value than $500 saved for one years at an interest rate of 6 percent.


A) Both Vince and Terri are correct.
B) Only Vince is correct.
C) Only Terri is correct.
D) Neither Vince nor Terri is correct.

E) C) and D)
F) B) and C)

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Write the formula to find the present value of $x to be paid in n years.

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What is the future value of $450 at an interest rate of 9 percent two years from today?


A) $534.65
B) $546.35
C) $565.18
D) $574.13

E) B) and D)
F) None of the above

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If Alan is risk-averse, then he will always


A) choose not to play a game where he has a 50 percent chance of winning $5 and a 50 percent chance of losing $5.
B) choose not to play a game where he has a 75 percent chance of winning $5 and a 25 percent chance of losing $5.
C) choose to play a game where he has a 55 percent chance of winning $5 and a 45 percent chance of losing $5.
D) All of the above are correct.

E) A) and C)
F) A) and D)

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Suppose the McCormick Corporation releases an earnings report that fails to meet the market's expectations. What does the efficient markets hypothesis predict will happen to McCormick's stock price?

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The efficient markets hypothes...

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Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded


A) rise, and investment spending rise.
B) rise, and investment spending fall.
C) fall, and investment spending rise.
D) fall, and investment spending fall.

E) None of the above
F) B) and C)

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Which of the following is the largest?


A) the future value of $250 with 3% interest for 2 years
B) the future value of $250 at 2% interest for 3 years
C) the present value of $250 to be paid in two years when the interest rate is 3%
D) the present value of $250 to be paid in three years when the interest rate is 2%

E) B) and C)
F) B) and D)

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By holding insurance a person


A) reduces the risk of a bad outcome, such as their house burning down.
B) shares risk and so reduces the burden of risk.
C) Both A and B are correct.
D) Neither A nor B are correct.

E) A) and B)
F) A) and C)

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Dividends


A) are the rates of return on mutual funds.
B) are cash payments that companies make to shareholders.
C) are the difference between the price and present value per share of a stock.
D) are the rates of return on a company's capital stock.

E) B) and D)
F) All of the above

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Showing 301 - 320 of 513

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