Question 1

Option value is the

Accepted Answer

A) most a person will pay for a risky product before knowing what the outcome will be 
B) difference between the option price and the expected value 
C) net benefits of every possible policy action weighted by the odds of that outcome 
D) the value a person chooses to attribute to a good 
A) most a person will pay for a risky product before knowing what the outcome will be 
B) difference between the option price and the expected value 
C) net benefits of every possible policy action weighted by the odds of that outcome 
D) the value a person chooses to attribute to a good B

Question 2

According to the Capital Asset Pricing Formula, if the risk free rate is 3%, the market rate of return is 6%, and Beta = .6, what is the required rate of return on the asset?

Accepted Answer

A) 4.8% 
B) 6% 
C) 3.6% 
D) 3% 
A) 4.8% 
B) 6% 
C) 3.6% 
D) 3% A

Question 3

A fair gamble is

Accepted Answer

A) a risk where the participant can expect to win any amount greater than 0 
B) a risk where all possible outcomes are known to the participant 
C) a risk where the player has a 50% chance of winning and a 50% chance of losing 
D) a risky decision with an expected value of $0 
A) a risk where the participant can expect to win any amount greater than 0 
B) a risk where all possible outcomes are known to the participant 
C) a risk where the player has a 50% chance of winning and a 50% chance of losing 
D) a risky decision with an expected value of $0 D

Question 4

Risk occurs when

Accepted Answer

A) there is a known probability of random variance in the outcome of an action 
B) there is imperfect information about the outcome of an action 
C) we are uncertain about a given probability 
D) there are known knowns, known unknowns, and unknown unknowns 
A) there is a known probability of random variance in the outcome of an action 
B) there is imperfect information about the outcome of an action 
C) we are uncertain about a given probability 
D) there are known knowns, known unknowns, and unknown unknowns

Question 5

Quasi option value is the maximum a person would pay for new information that reduces

Accepted Answer

A) risk 
B) probability of losing any money 
C) uncertainty 
D) expected value 
A) risk 
B) probability of losing any money 
C) uncertainty 
D) expected value

Question 6

Suppose a person has a risk averse utility function of U(W)= √(Wealth).Also, suppose her initial wealth is $2,500.She can choose to play a game with a 50% chance of winning $1,100 and a 50% chance of losing $900.Would she choose to play the game ?

Accepted Answer

A) yes 
B) no 
C) she will be indifferent between playing and not playing 
A) yes 
B) no 
C) she will be indifferent between playing and not playing

Question 7

Suppose you play a game where you pay $100 dollars to participate and have a 50% chance of winning nothing, a 10% chance of winning $1,100, a 20% chance of winning $600 and a 25% chance of losing $650.What is the expected value of participating in the game?

Accepted Answer

A) $100 
B) $0 
C) -$100 
D) $1,050 
A) $100 
B) $0 
C) -$100 
D) $1,050

Question 8

Suppose a person has a 1/100 chance of being mugged on the street.His utility function is √(Wealth).He initially has $1,600 which he carries on him at all times.If he's mugged he loses all of his money.What is the maximum he would be willing to pay to insure his money against mugging?

Accepted Answer

A) $40.13 
B) $16 
C) $25.67 
D) $34.84 
A) $40.13 
B) $16 
C) $25.67 
D) $34.84

Question 9

Community rating and adverse selection are somewhat related concepts in insurance policy analysis.Which of the following are true regarding adverse selection:

Accepted Answer

A) given equal insurance premiums across groups, the most costly households will tend to buy insurance, while the least costly households will not. 
B) adverse selection limits rate differences to selected categories, which does not allow insurance companies to charge each group according to its expected cost. 
C) only the sickest or most dangerous are likely to buy insurance. 
D) adverse selection refers to bad choices among some individuals. 
E) a and c are both correct. 
A) given equal insurance premiums across groups, the most costly households will tend to buy insurance, while the least costly households will not. 
B) adverse selection limits rate differences to selected categories, which does not allow insurance companies to charge each group according to its expected cost. 
C) only the sickest or most dangerous are likely to buy insurance. 
D) adverse selection refers to bad choices among some individuals. 
E) a and c are both correct.

Question 10

You flip a coin and roll a di simultaneously.If the coin is heads up you win as many dollars as there are on the face of di.If the coin is tails, you must pay $3.You have the option to play or not.What should you do if you are a risk neutral person?

Accepted Answer

A) play 
B) not play 
C) it doesn't matter, the expected value is the same 
A) play 
B) not play 
C) it doesn't matter, the expected value is the same

Question 11

Which line shows a risk free asset in the capital asset pricing model?

Accepted Answer

A) β=1 
B) β1 
D) none of the above 
A) β=1 
B) β1 
D) none of the above

Option value is the

According to the Capital Asset Pricing Formula, if the risk free rate is 3%, the market rate of return is 6%, and Beta = .6, what is the required rate of return on the asset?

A fair gamble is

Risk occurs when

Quasi option value is the maximum a person would pay for new information that reduces

Suppose a person has a risk averse utility function of U(W)= √(Wealth).Also, suppose her initial wealth is $2,500.She can choose to play a game with a 50% chance of winning $1,100 and a 50% chance of losing $900.Would she choose to play the game ?

Suppose you play a game where you pay $100 dollars to participate and have a 50% chance of winning nothing, a 10% chance of winning $1,100, a 20% chance of winning $600 and a 25% chance of losing $650.What is the expected value of participating in the game?

Suppose a person has a 1/100 chance of being mugged on the street.His utility function is √(Wealth).He initially has $1,600 which he carries on him at all times.If he's mugged he loses all of his money.What is the maximum he would be willing to pay to insure his money against mugging?

Community rating and adverse selection are somewhat related concepts in insurance policy analysis.Which of the following are true regarding adverse selection:

You flip a coin and roll a di simultaneously.If the coin is heads up you win as many dollars as there are on the face of di.If the coin is tails, you must pay $3.You have the option to play or not.What should you do if you are a risk neutral person?

Which line shows a risk free asset in the capital asset pricing model?

The Meaning of Policy Analysis

A Review of Markets and Rational Behavior

Ethics for Policy Analysts

Efficiency and Imperfect Markets

Efficiency and the Role of Government

Benefit-Cost Analysis

Net Benefits Over Time and Present Value

Choosing a Discount Rate

Life, Health, and Health Care

Economic Impact Analysis

Urban Transportation

Pollution Control Policy

Poverty and Income Support Policies

Policies for the Working Poor: Training, Worker Subsidies and the Minimum Wage

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Exam 9: Risk and Uncertainty

Option value is the

According to the Capital Asset Pricing Formula, if the risk free rate is 3%, the market rate of return is 6%, and Beta = .6, what is the required rate of return on the asset?

A fair gamble is

Risk occurs when

Quasi option value is the maximum a person would pay for new information that reduces

Suppose a person has a risk averse utility function of U(W)= √(Wealth).Also, suppose her initial wealth is $2,500.She can choose to play a game with a 50% chance of winning $1,100 and a 50% chance of losing $900.Would she choose to play the game ?

Suppose you play a game where you pay $100 dollars to participate and have a 50% chance of winning nothing, a 10% chance of winning $1,100, a 20% chance of winning $600 and a 25% chance of losing $650.What is the expected value of participating in the game?

Suppose a person has a 1/100 chance of being mugged on the street.His utility function is √(Wealth).He initially has $1,600 which he carries on him at all times.If he's mugged he loses all of his money.What is the maximum he would be willing to pay to insure his money against mugging?

Community rating and adverse selection are somewhat related concepts in insurance policy analysis.Which of the following are true regarding adverse selection:

You flip a coin and roll a di simultaneously.If the coin is heads up you win as many dollars as there are on the face of di.If the coin is tails, you must pay $3.You have the option to play or not.What should you do if you are a risk neutral person?

Which line shows a risk free asset in the capital asset pricing model?

The Meaning of Policy Analysis

A Review of Markets and Rational Behavior

Ethics for Policy Analysts

Efficiency and Imperfect Markets

Efficiency and the Role of Government

Benefit-Cost Analysis

Net Benefits Over Time and Present Value

Choosing a Discount Rate

Life, Health, and Health Care

Economic Impact Analysis

Urban Transportation

Pollution Control Policy

Poverty and Income Support Policies

Policies for the Working Poor: Training, Worker Subsidies and the Minimum Wage

Filters