Exam 5: Uncertainty

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An individual whose utility function is given by An individual whose utility function is given by   ​(where W<sub>i</sub> is wealth in state i)will: ​(where Wi is wealth in state i)will:

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A

A risk-averse individual is offered a gamble that promises a gain of $1000 with probability 0.25 and a loss of $300 with probability 0.75.Given this situation,he or she will:

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D

Risk aversion is best explained by:

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D

Suppose a person's utility of wealth is given by Suppose a person's utility of wealth is given by   And his or her initial wealth is 10,000.What is the maximum amount he or she would pay for insurance against a 50 percent chance of losing 3,600? And his or her initial wealth is 10,000.What is the maximum amount he or she would pay for insurance against a 50 percent chance of losing 3,600?

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An individual will never buy complete insurance if:

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More risk-averse people will:

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The condition for optimal portfolio choice can be represented by:

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Which of the following utility functions exhibits constant absolute risk aversion?

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The formula for the Pratt measure of risk aversion is:​

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Risk-averse individuals will diversify their investments because this will:

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People who always choose not to participate in fair games are called:

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An option may add value to a transaction because:

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If a fair game is played many times the monetary losses or gains will:

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A risk-neutral individual is offered a gamble that promises a gain of $1000 with probability 0.25 and a loss of $300 with probability 0.75.Given this situation,he or she will:​

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The expected value of a random variable is:

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Which of the following utility functions exhibits constant relative risk aversion?

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Faced with an uncertain situation,the best decision for a person obeying the von-Neumann Morgenstern axioms:​

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Which of the following utility functions would indicate the most (relative)risk-averse behavior?

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What property of the von-Neumann Morgenstern utility function is related to risk aversion?​

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