Question 1

The present value of $250,000 received in 10 years at 2 percent interest is approximately:

Accepted Answer

A) $205,087. 
B) $212,051. 
C) $305,194. 
D) $195,085. 
A) $205,087. 
B) $212,051. 
C) $305,194. 
D) $195,085. A

Question 2

If you knew that an investment was going to pay you $46,370 in 5 years, and you knew that the annual interest rate over that time would be 3 percent, you could calculate the present value to be:

Accepted Answer

A) $39,999. 
B) $37,000. 
C) $41,998. 
D) $41,600. 
A) $39,999. 
B) $37,000. 
C) $41,998. 
D) $41,600. A

Question 3

Diversification:

Accepted Answer

A) reduces the likelihood that bad things will happen to you. 
B) reduces the chance that you'll be completely ruined by a single unfortunate event. 
C) increases the likelihood that bad things will happen to you. 
D) None of these are true. 
A) reduces the likelihood that bad things will happen to you. 
B) reduces the chance that you'll be completely ruined by a single unfortunate event. 
C) increases the likelihood that bad things will happen to you. 
D) None of these are true. B

Question 4

Risk pooling:

Accepted Answer

A) reduces the chances of catastrophes happening. 
B) lowers the costs of catastrophes when they occur. 
C) reduces the cost to an individual if a catastrophe occurs. 
D) All of these are true. 
A) reduces the chances of catastrophes happening. 
B) lowers the costs of catastrophes when they occur. 
C) reduces the cost to an individual if a catastrophe occurs. 
D) All of these are true.

Question 5

If you knew that an investment was going to pay you $215,892.50 in 10 years, and you knew that the annual interest rate over that time would be 8 percent, you could calculate the present value to be:

Accepted Answer

A) $80,000. 
B) $100,000. 
C) $150,000. 
D) $125,000. 
A) $80,000. 
B) $100,000. 
C) $150,000. 
D) $125,000.

Question 6

Julia is thinking about leaving her place of work and starting her own business. If she stays with her company, there is an 85 percent chance that she will remain in her current role earning $40,000 per year and a 15 percent chance that she will receive a promotion and earn $50,000 per year. If she starts her own business, there is a 30 percent chance she'll earn $60,000 per year; a 20 percent chance she'll earn $80,000 per year; and a 50 percent chance she'll earn $20,000 per year. Which of the following statements is true?If Julia is risk averse, she will definitely prefer to stay with her current company.If Julia is risk neutral, she will definitely prefer to start her own business.The expected value of Julia's earnings is $44,000 if she starts her own business.

Accepted Answer

A) I and III only 
B) II and III only 
C) I and II only 
D) I, II, and III 
A) I and III only 
B) II and III only 
C) I and II only 
D) I, II, and III

Question 7

Which of the following is closest to the future value of a $100 deposit earning 5 percent interest annually after 5 years?

Accepted Answer

A) $125 
B) $128 
C) $1,268 
D) $105 
A) $125 
B) $128 
C) $1,268 
D) $105

Question 8

Which of the following is closest to the future value of a $4,000 deposit earning 2 percent interest annually after 10 years?

Accepted Answer

A) $4,122 
B) $4,876 
C) $5,025 
D) $4,805 
A) $4,122 
B) $4,876 
C) $5,025 
D) $4,805

Question 9

A deposit of $50,000 after a year at 2 percent interest is valued at:

Accepted Answer

A) $1,000. 
B) $52,000. 
C) $49,000. 
D) $51,000. 
A) $1,000. 
B) $52,000. 
C) $49,000. 
D) $51,000.

Question 10

Shayla is thinking about leaving her place of work and starting her own business. If she stays with her company, there is an 80 percent chance that she will remain in her current role earning $50,000 per year and a 20 percent chance that she will receive a promotion and earn $60,000 per year. If she starts her own business, there is a 40 percent chance she'll earn $80,000 per year; a 10 percent chance she'll earn $100,000 per year; and a 50 percent chance she'll earn $20,000 per year. Which of the following statements is true?

Accepted Answer

A) Shayla's expected earnings are $2,000 more if she stays with her current company. 
B) If Shayla is risk neutral, she will be indifferent between staying with her current company and starting her own business. 
C) Shayla's expected earnings are $55,000 per year if she stays with her current company. 
D) None of these statements are true. 
A) Shayla's expected earnings are $2,000 more if she stays with her current company. 
B) If Shayla is risk neutral, she will be indifferent between staying with her current company and starting her own business. 
C) Shayla's expected earnings are $55,000 per year if she stays with her current company. 
D) None of these statements are true.

Question 11

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.What is the expected value of John's revenue if he chooses to expand?

Accepted Answer

A) $320,000 
B) $230,000 
C) $900,000 
D) $140,000 
A) $320,000 
B) $230,000 
C) $900,000 
D) $140,000

Question 12

Economists assume that, in general, when individuals are faced with two choices that have the same expected value, they will prefer the choice with:

Accepted Answer

A) lower risk. 
B) higher risk. 
C) the higher opportunity cost. 
D) the lower future value. 
A) lower risk. 
B) higher risk. 
C) the higher opportunity cost. 
D) the lower future value.

Question 13

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.What should John do?

Accepted Answer

A) Expand, because he expects to earn $320,000 in revenue by expanding and it will only cost him $150,000 to do so. 
B) Not expand, because there is a chance he can earn the same amount not expanding without making the $150,000 investment. 
C) Not expand, because he expects to earn only $120,000 more revenue by expanding than not, and it will cost him $150,000 to expand. 
D) Expand, because he has a 70 percent chance of earning more revenue by expanding than what it will cost to do so. 
A) Expand, because he expects to earn $320,000 in revenue by expanding and it will only cost him $150,000 to do so. 
B) Not expand, because there is a chance he can earn the same amount not expanding without making the $150,000 investment. 
C) Not expand, because he expects to earn only $120,000 more revenue by expanding than not, and it will cost him $150,000 to expand. 
D) Expand, because he has a 70 percent chance of earning more revenue by expanding than what it will cost to do so.

Question 14

The present value of $300,000 received in 12 years at 4 percent interest is approximately:

Accepted Answer

A) $312,451. 
B) $187,379. 
C) $427,126. 
D) None of these are true. 
A) $312,451. 
B) $187,379. 
C) $427,126. 
D) None of these are true.

Question 15

Which of the following is a mechanism for reallocating risk?

Accepted Answer

A) Risk pooling 
B) Dividend pooling 
C) Risk premiums 
D) None of these are mechanisms for reallocating risk. 
A) Risk pooling 
B) Dividend pooling 
C) Risk premiums 
D) None of these are mechanisms for reallocating risk.

Question 16

What is the amount of interest owed on a loan of $2,000 after a year at an interest rate of 10 percent?

Accepted Answer

A) $2,100 
B) $2,200 
C) $200 
D) $100 
A) $2,100 
B) $2,200 
C) $200 
D) $100

Question 17

When people are considered risk averse, they:

Accepted Answer

A) generally have a low willingness to take on risk. 
B) generally have a high willingness to take on risk. 
C) will only participate in low-risk activities. 
D) will never accept risk in any situation. 
A) generally have a low willingness to take on risk. 
B) generally have a high willingness to take on risk. 
C) will only participate in low-risk activities. 
D) will never accept risk in any situation.

Question 18

Those who generally have a low willingness to take on risk are said to be:

Accepted Answer

A) risk-seekers. 
B) risk-averse. 
C) low-risk players. 
D) high-compensation players. 
A) risk-seekers. 
B) risk-averse. 
C) low-risk players. 
D) high-compensation players.

Question 19

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.John decides to expand. Which of the following is true?

Accepted Answer

A) John's expected revenue is $50,000 less than it would have been if he didn't expand. 
B) John will earn $120,000 more revenue, but this amount is less than the cost of expansion. 
C) John will earn $120,000 more revenue and therefore made the most profitable decision. 
D) All of these statements are true. 
A) John's expected revenue is $50,000 less than it would have been if he didn't expand. 
B) John will earn $120,000 more revenue, but this amount is less than the cost of expansion. 
C) John will earn $120,000 more revenue and therefore made the most profitable decision. 
D) All of these statements are true.

Question 20

Individuals who are thinking about investing money in stocks, bonds, or real estate must consider:

Accepted Answer

A) the trade-off between future value and expected value. 
B) the opportunity cost of the risk involved. 
C) the trade-off between risk and expected value. 
D) the opportunity cost of the expected value. 
A) the trade-off between future value and expected value. 
B) the opportunity cost of the risk involved. 
C) the trade-off between risk and expected value. 
D) the opportunity cost of the expected value.

The present value of $250,000 received in 10 years at 2 percent interest is approximately:

If you knew that an investment was going to pay you $46,370 in 5 years, and you knew that the annual interest rate over that time would be 3 percent, you could calculate the present value to be:

Diversification:

Risk pooling:

If you knew that an investment was going to pay you $215,892.50 in 10 years, and you knew that the annual interest rate over that time would be 8 percent, you could calculate the present value to be:

Which of the following is closest to the future value of a $100 deposit earning 5 percent interest annually after 5 years?

Which of the following is closest to the future value of a $4,000 deposit earning 2 percent interest annually after 10 years?

A deposit of $50,000 after a year at 2 percent interest is valued at:

Economists assume that, in general, when individuals are faced with two choices that have the same expected value, they will prefer the choice with:

The present value of $300,000 received in 12 years at 4 percent interest is approximately:

Which of the following is a mechanism for reallocating risk?

What is the amount of interest owed on a loan of $2,000 after a year at an interest rate of 10 percent?

When people are considered risk averse, they:

Those who generally have a low willingness to take on risk are said to be:

Individuals who are thinking about investing money in stocks, bonds, or real estate must consider:

Economics and Life

Specialization and Exchange

Markets

Elasticity

Efficiency

Government Intervention

Consumer Behavior

Behavioral Economics: a Closer Look at Decision Making

Game Theory and Strategic Thinking

Information

The Costs of Production

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

The Facts of Production

International Trade

Externalities

Public Goods and Common Resources

Taxation and the Public Budget

Poverty, Inequality, and Discrimination

Political Choices

Public Policy and Choice Architecture

Filters

Exam 11: Time and Uncertainty

The present value of $250,000 received in 10 years at 2 percent interest is approximately:

If you knew that an investment was going to pay you $46,370 in 5 years, and you knew that the annual interest rate over that time would be 3 percent, you could calculate the present value to be:

Diversification:

Risk pooling:

If you knew that an investment was going to pay you $215,892.50 in 10 years, and you knew that the annual interest rate over that time would be 8 percent, you could calculate the present value to be:

Which of the following is closest to the future value of a $100 deposit earning 5 percent interest annually after 5 years?

Which of the following is closest to the future value of a $4,000 deposit earning 2 percent interest annually after 10 years?

A deposit of $50,000 after a year at 2 percent interest is valued at:

Economists assume that, in general, when individuals are faced with two choices that have the same expected value, they will prefer the choice with:

The present value of $300,000 received in 12 years at 4 percent interest is approximately:

Which of the following is a mechanism for reallocating risk?

What is the amount of interest owed on a loan of $2,000 after a year at an interest rate of 10 percent?

When people are considered risk averse, they:

Those who generally have a low willingness to take on risk are said to be:

Individuals who are thinking about investing money in stocks, bonds, or real estate must consider:

Economics and Life

Specialization and Exchange

Markets

Elasticity

Efficiency

Government Intervention

Consumer Behavior

Behavioral Economics: a Closer Look at Decision Making

Game Theory and Strategic Thinking

Information

The Costs of Production

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

The Facts of Production

International Trade

Externalities

Public Goods and Common Resources

Taxation and the Public Budget

Poverty, Inequality, and Discrimination

Political Choices

Public Policy and Choice Architecture

Filters