Question 1

Probability

Accepted Answer

A)  is a number between 0 and 1, inclusive. 
B)  indicates how likely an outcome is to occur. 
C)  is larger the more likely the event is to occur. 
D)  All of the above. 
A)  is a number between 0 and 1, inclusive. 
B)  indicates how likely an outcome is to occur. 
C)  is larger the more likely the event is to occur. 
D)  All of the above.

Question 2

A fair game is a game in which the chances are 50-50 that you win or lose.

Accepted Answer

A) True 
 B)False

Question 3

Although he is very poor,Al plays the million-dollar lottery everyday because he is certain that one day he will win.Al makes this calculation based upon

Accepted Answer

A)  the frequency of past outcomes. 
B)  subjective probability. 
C)  knowledge of all possible outcomes. 
D)  tossing a coin. 
A)  the frequency of past outcomes. 
B)  subjective probability. 
C)  knowledge of all possible outcomes. 
D)  tossing a coin.

Question 4

According to ________,people are often risk averse when it comes to gains and risk preferring when it comes to losses.

Accepted Answer

A)  prospect theory 
B)  the reflection effect 
C)  the certainty effect 
D)  the framing effect 
A)  prospect theory 
B)  the reflection effect 
C)  the certainty effect 
D)  the framing effect

Question 5

People in a certain group have a 0.3% chance of dying this year.If a person in this group buys a life insurance policy for $3,300 that pays $1,000,000 to her family if she dies this year and $0 otherwise,what is the expected value of a policy to the insurance company?

Accepted Answer

A)  $0 
B)  $300 
C)  $3,000 
D)  $3,300 
A)  $0 
B)  $300 
C)  $3,000 
D)  $3,300

Question 6

A fair bet is one where

Accepted Answer

A)  the player has a 50/50 chance of winning. 
B)  the player's utility function is convex. 
C)  the expected value is zero. 
D)  the expected value is positive. 
A)  the player has a 50/50 chance of winning. 
B)  the player's utility function is convex. 
C)  the expected value is zero. 
D)  the expected value is positive.

Question 7

Someone who is risk-preferring 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 8

If an event is unlikely to occur,which probability is a reasonable estimate?

Accepted Answer

A)  0 
B)  0.23 
C)  0.82 
D)  Not enough information to determine. 
A)  0 
B)  0.23 
C)  0.82 
D)  Not enough information to determine.

Question 9

Risk-averse individuals make risky investments

Accepted Answer

A)  never. 
B)  when the investment's expected return exceeds the return on a non-risky investment. 
C)  when the investment's expected return adequately compensates for the risk. 
D)  only when they are feeling irrational. 
A)  never. 
B)  when the investment's expected return exceeds the return on a non-risky investment. 
C)  when the investment's expected return adequately compensates for the risk. 
D)  only when they are feeling irrational.

Question 10

If a person is entertained by gambling,then

Accepted Answer

A)  she is not risk averse. 
B)  she does not understand the concept of a fair game. 
C)  she may gamble even if it is an unfair game. 
D)  she will definitely not buy automobile insurance. 
A)  she is not risk averse. 
B)  she does not understand the concept of a fair game. 
C)  she may gamble even if it is an unfair game. 
D)  she will definitely not buy automobile insurance.

Question 11

If Stock A and Stock B both increase in value at the same time,they are

Accepted Answer

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

Question 12

A jar has 20 red jelly beans and 40 black jelly beans.If you pick a red jelly bean and put it back,what are the odds of picking a red jelly bean next?

Accepted Answer

A)  20/40 
B)  20/60 
C)  40/60 
D)  0 
A)  20/40 
B)  20/60 
C)  40/60 
D)  0

Question 13

-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 will buy theft insurance to cover the full $100

Accepted Answer

A)  as long as it does not cost more than $25. 
B)  as long as it does not cost more than $50. 
C)  as long as it does not cost more than $70. 
D)  at any price. 
A)  as long as it does not cost more than $25. 
B)  as long as it does not cost more than $50. 
C)  as long as it does not cost more than $70. 
D)  at any price.

Question 14

A stock mutual fund's primary advantage is to allow

Accepted Answer

A)  investors to diversify away systematic risk. 
B)  investors to diversify away all risk. 
C)  investors to diversify away idiosyncratic risk. 
D)  the rich to avoid taxes. 
A)  investors to diversify away systematic risk. 
B)  investors to diversify away all risk. 
C)  investors to diversify away idiosyncratic risk. 
D)  the rich to avoid taxes.

Question 15

If a person is risk averse,then she has negative marginal utility of wealth.

Accepted Answer

A) True 
 B)False

Question 16

If an event is certain to occur,it has a probability (pr)of

Accepted Answer

A)  0. 
B)  0 < pr < 1. 
C)  1. 
D)  Not enough information to determine. 
A)  0. 
B)  0 < pr < 1. 
C)  1. 
D)  Not enough information to determine.

Question 17

If a person willingly plays an unfair game that is not in his favor,he is risk loving.

Accepted Answer

A) True 
 B)False

Question 18

On any given day we know a salesman can earn $0 with a 30% probability,$100 with a 20% probability or $300 with 40% probability.His expected earnings equal

Accepted Answer

A)  $0. 
B)  $140. 
C)  $300. 
D)  It cannot be determined from the available information. 
A)  $0. 
B)  $140. 
C)  $300. 
D)  It cannot be determined from the available information.

Question 19

If an event is likely to occur,which probability is a reasonable estimate?

Accepted Answer

A)  0.32 
B)  0.79 
C)  1 
D)  Not enough information to determine. 
A)  0.32 
B)  0.79 
C)  1 
D)  Not enough information to determine.

Question 20

Sarah buys little stuffed animals for $5 each.They come in different varieties.If the producer stops making (retires)a certain variety,a stuffed animal of that variety will be worth $100; otherwise it is worth $0.There is 50% chance that any variety will be retired.For the purchase of an individual stuffed animal,what is the value to Sarah of knowing ahead of time whether the variety will be retired?

Accepted Answer

A)  $50 
B)  $5 
C)  $2.50 
D)  $0 
A)  $50 
B)  $5 
C)  $2.50 
D)  $0

Probability

A fair game is a game in which the chances are 50-50 that you win or lose.

Although he is very poor,Al plays the million-dollar lottery everyday because he is certain that one day he will win.Al makes this calculation based upon

According to ________,people are often risk averse when it comes to gains and risk preferring when it comes to losses.

People in a certain group have a 0.3% chance of dying this year.If a person in this group buys a life insurance policy for $3,300 that pays $1,000,000 to her family if she dies this year and $0 otherwise,what is the expected value of a policy to the insurance company?

A fair bet is one where

Someone who is risk-preferring has

If an event is unlikely to occur,which probability is a reasonable estimate?

Risk-averse individuals make risky investments

If a person is entertained by gambling,then

If Stock A and Stock B both increase in value at the same time,they are

A jar has 20 red jelly beans and 40 black jelly beans.If you pick a red jelly bean and put it back,what are the odds of picking a red jelly bean next?

-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 will buy theft insurance to cover the full $100

A stock mutual fund's primary advantage is to allow

If a person is risk averse,then she has negative marginal utility of wealth.

If an event is certain to occur,it has a probability (pr)of

If a person willingly plays an unfair game that is not in his favor,he is risk loving.

On any given day we know a salesman can earn $0 with a 30% probability,$100 with a 20% probability or $300 with 40% probability.His expected earnings equal

If an event is likely to occur,which probability is a reasonable estimate?

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

Probability

A fair game is a game in which the chances are 50-50 that you win or lose.

Although he is very poor,Al plays the million-dollar lottery everyday because he is certain that one day he will win.Al makes this calculation based upon

According to ________,people are often risk averse when it comes to gains and risk preferring when it comes to losses.

People in a certain group have a 0.3% chance of dying this year.If a person in this group buys a life insurance policy for $3,300 that pays $1,000,000 to her family if she dies this year and $0 otherwise,what is the expected value of a policy to the insurance company?

A fair bet is one where

Someone who is risk-preferring has

If an event is unlikely to occur,which probability is a reasonable estimate?

Risk-averse individuals make risky investments

If a person is entertained by gambling,then

If Stock A and Stock B both increase in value at the same time,they are

A jar has 20 red jelly beans and 40 black jelly beans.If you pick a red jelly bean and put it back,what are the odds of picking a red jelly bean next?

-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 will buy theft insurance to cover the full $100

A stock mutual fund's primary advantage is to allow

If a person is risk averse,then she has negative marginal utility of wealth.

If an event is certain to occur,it has a probability (pr)of

If a person willingly plays an unfair game that is not in his favor,he is risk loving.

On any given day we know a salesman can earn $0 with a 30% probability,$100 with a 20% probability or $300 with 40% probability.His expected earnings equal

If an event is likely to occur,which probability is a reasonable estimate?

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