Question 1

Prospect theory can explain why

Accepted Answer

A)  people tend to gamble on long odds with small expected utility. 
B)  people tend to sell their losing stocks and keep their winning stocks. 
C)  people should only sell their losing stocks. 
D)  people should never play the lottery. 
A)  people tend to gamble on long odds with small expected utility. 
B)  people tend to sell their losing stocks and keep their winning stocks. 
C)  people should only sell their losing stocks. 
D)  people should never play the lottery.

Question 2

Natasha is going to buy a risky asset that has an expected value of $62,which yields an expected utility of 146.Her risk premium is $19.What is her certainty equivalent?

Accepted Answer

A)  $19 
B)  $43 
C)  $81 
D)  $208 
A)  $19 
B)  $43 
C)  $81 
D)  $208

Question 3

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John

Accepted Answer

A)  is risk averse. 
B)  is risk loving. 
C)  is risk neutral. 
D)  has a negative marginal utility of wealth. 
A)  is risk averse. 
B)  is risk loving. 
C)  is risk neutral. 
D)  has a negative marginal utility of wealth.

Question 4

Variance is a measure of ________ and the lower the variance,________.

Accepted Answer

A)  expected profit; the lower the profit 
B)  risk; the lower the risk 
C)  standard deviation; lower the standard deviation 
D)  risk; the greater the risk 
A)  expected profit; the lower the profit 
B)  risk; the lower the risk 
C)  standard deviation; lower the standard deviation 
D)  risk; the greater the risk

Question 5

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob's expected utility is

Accepted Answer

A)  a. 
B)  b. 
C)  c. 
D)  d. 
A)  a. 
B)  b. 
C)  c. 
D)  d.

Question 6

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

Accepted Answer

This person is risk preferring

Question 7

If Stock A sometimes increases and sometimes decreases in value when Stock B increases in value at the same time,they are

Accepted Answer

A)  negatively correlated. 
B)  uncorrelated. 
C)  positively correlated. 
D)  random bets. 
A)  negatively correlated. 
B)  uncorrelated. 
C)  positively correlated. 
D)  random bets.

Question 8

In terms of the stock market systematic risk refers to the fact that

Accepted Answer

A)  some stocks have higher returns than others. 
B)  some stocks' returns have a higher variance than others. 
C)  all stock prices are correlated with the health of the economy. 
D)  most stock prices are perfectly negatively correlated. 
A)  some stocks have higher returns than others. 
B)  some stocks' returns have a higher variance than others. 
C)  all stock prices are correlated with the health of the economy. 
D)  most stock prices are perfectly negatively correlated.

Question 9

Concerning an investment project which of the following is TRUE?

Accepted Answer

A)  A risk-neutral individual is more likely to invest than a risk-averse individual. 
B)  A risk-neutral individual is more likely to invest than a risk-loving individual. 
C)  A risk-neutral individual is less likely to invest than a risk-averse individual. 
D)  Not enough information is given. 
A)  A risk-neutral individual is more likely to invest than a risk-averse individual. 
B)  A risk-neutral individual is more likely to invest than a risk-loving individual. 
C)  A risk-neutral individual is less likely to invest than a risk-averse individual. 
D)  Not enough information is given.

Question 10

Making many risky bets

Accepted Answer

A)  reduces your expected value. 
B)  is called risk-pooling and can reduce risk. 
C)  is irrational. 
D)  is called risk pooling and increases your expected value. 
A)  reduces your expected value. 
B)  is called risk-pooling and can reduce risk. 
C)  is irrational. 
D)  is called risk pooling and increases your expected value.

Question 11

Searching the Internet for information to help select a product that is more reliable is most likely to be done by a

Accepted Answer

A)  risk-averse person. 
B)  risk-neutral person. 
C)  risk-preferring person. 
D)  This cannot be determined with the information provided. 
A)  risk-averse person. 
B)  risk-neutral person. 
C)  risk-preferring person. 
D)  This cannot be determined with the information provided.

Question 12

Which of the following helps to reduce risk?

Accepted Answer

A)  purchasing insurance 
B)  obtain more information 
C)  diversify 
D)  All of the above. 
A)  purchasing insurance 
B)  obtain more information 
C)  diversify 
D)  All of the above.

Question 13

On any given day,a salesman can earn $0 with a 30% probability,$100 with a 20% probability,or $300 with a 50% probability.His expected earnings equal

Accepted Answer

A)  $0. 
B)  $100. 
C)  $150. 
D)  $170. 
A)  $0. 
B)  $100. 
C)  $150. 
D)  $170.

Question 14

Someone who is risk-neutral has

Accepted Answer

A)  diminishing marginal utility of wealth. 
B)  constant marginal utility of wealth. 
C)  increasing marginal utility of wealth. 
D)  less marginal utility of wealth than someone who is risk-preferring. 
A)  diminishing marginal utility of wealth. 
B)  constant marginal utility of wealth. 
C)  increasing marginal utility of wealth. 
D)  less marginal utility of wealth than someone who is risk-preferring.

Question 15

Bob invests $25 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

Accepted Answer

A)  risk preferring. 
B)  risk neutral. 
C)  risk averse. 
D)  Any of the above. 
A)  risk preferring. 
B)  risk neutral. 
C)  risk averse. 
D)  Any of the above.

Question 16

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Living with this risk gives Bob the same expected utility as if there was no chance of theft and his wealth was

Accepted Answer

A)  $0. 
B)  $20. 
C)  $30. 
D)  $50. 
A)  $0. 
B)  $20. 
C)  $30. 
D)  $50.

Question 17

The gambler's fallacy is

Accepted Answer

A)  true in many games, such as flipping coins. 
B)  a result of overconfidence. 
C)  the false belief that past events affect current dependent outcomes. 
D)  the false belief that past events affect current independent outcomes. 
A)  true in many games, such as flipping coins. 
B)  a result of overconfidence. 
C)  the false belief that past events affect current dependent outcomes. 
D)  the false belief that past events affect current independent outcomes.

Question 18

If a person is risk neutral,then she

Accepted Answer

A)  is indifferent about taking a fair bet. 
B)  will pay a premium to avoid a fair bet. 
C)  has a horizontal utility function. 
D)  has zero marginal utility of wealth. 
A)  is indifferent about taking a fair bet. 
B)  will pay a premium to avoid a fair bet. 
C)  has a horizontal utility function. 
D)  has zero marginal utility of wealth.

Question 19

John derives more utility from having $1,000 than from having $100.From this,we can conclude that John

Accepted Answer

A)  is risk averse. 
B)  is risk loving. 
C)  is risk neutral. 
D)  has a positive marginal utility of wealth. 
A)  is risk averse. 
B)  is risk loving. 
C)  is risk neutral. 
D)  has a positive marginal utility of wealth.

Question 20

What is one reason a gambler might bet $1,000 that a sixteenth seed team will win the NCAA basketball tournament?

Accepted Answer

A)  irrationality 
B)  overconfidence 
C)  exuberance 
D)  gambler's fallacy 
A)  irrationality 
B)  overconfidence 
C)  exuberance 
D)  gambler's fallacy

Prospect theory can explain why

Natasha is going to buy a risky asset that has an expected value of $62,which yields an expected utility of 146.Her risk premium is $19.What is her certainty equivalent?

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John

Variance is a measure of and the lower the variance,.

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob's expected utility is

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

If Stock A sometimes increases and sometimes decreases in value when Stock B increases in value at the same time,they are

In terms of the stock market systematic risk refers to the fact that

Concerning an investment project which of the following is TRUE?

Making many risky bets

Searching the Internet for information to help select a product that is more reliable is most likely to be done by a

Which of the following helps to reduce risk?

On any given day,a salesman can earn $0 with a 30% probability,$100 with a 20% probability,or $300 with a 50% probability.His expected earnings equal

Someone who is risk-neutral has

Bob invests $25 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Living with this risk gives Bob the same expected utility as if there was no chance of theft and his wealth was

The gambler's fallacy is

If a person is risk neutral,then she

John derives more utility from having $1,000 than from having $100.From this,we can conclude that John

What is one reason a gambler might bet $1,000 that a sixteenth seed team will win the NCAA basketball tournament?

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Asymmetric Information

Government and Business

Global Business

Filters

Exam 14: Managerial Decision-Making Under Uncertainty

Prospect theory can explain why

Natasha is going to buy a risky asset that has an expected value of $62,which yields an expected utility of 146.Her risk premium is $19.What is her certainty equivalent?

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John

Variance is a measure of ________ and the lower the variance,________.

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob's expected utility is

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

If Stock A sometimes increases and sometimes decreases in value when Stock B increases in value at the same time,they are

In terms of the stock market systematic risk refers to the fact that

Concerning an investment project which of the following is TRUE?

Making many risky bets

Searching the Internet for information to help select a product that is more reliable is most likely to be done by a

Which of the following helps to reduce risk?

On any given day,a salesman can earn $0 with a 30% probability,$100 with a 20% probability,or $300 with a 50% probability.His expected earnings equal

Someone who is risk-neutral has

Bob invests $25 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Living with this risk gives Bob the same expected utility as if there was no chance of theft and his wealth was

The gambler's fallacy is

If a person is risk neutral,then she

John derives more utility from having $1,000 than from having $100.From this,we can conclude that John

What is one reason a gambler might bet $1,000 that a sixteenth seed team will win the NCAA basketball tournament?

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Asymmetric Information

Government and Business

Global Business

Filters

Variance is a measure of and the lower the variance,.