Question 1

An individual faces two alternatives for an investment.Asset 'A' has the following probability of return schedule:
A.

Accepted Answer

@#IMG-DLM& Asset 'B' has a certain return of 10.25

Question 2

Uncertainties that are not quantifiable:

Accepted Answer

A) are what we define as risk. 
B) are factored into the price of an asset. 
C) cannot be priced. 
D) are benchmarks against which quantifiable risks can be assessed. 
A) are what we define as risk. 
B) are factored into the price of an asset. 
C) cannot be priced. 
D) are benchmarks against which quantifiable risks can be assessed.

Question 3

Explain the following: Risk results from the fact that more outcomes could happen than will happen.

Accepted Answer

Risk results from uncertainty, not knowi

Question 4

The risk premium for an investment:

Accepted Answer

A) is negative for U.S.treasury securities. 
B) is a fixed amount added to the risk-free return, regardless of the level of risk. 
C) increases with risk. 
D) is zero (0) for risk-averse investors. 
A) is negative for U.S.treasury securities. 
B) is a fixed amount added to the risk-free return, regardless of the level of risk. 
C) increases with risk. 
D) is zero (0) for risk-averse investors.

Question 5

Which of the following would not be included in a definition of risk?

Accepted Answer

A) Risk is a measure of uncertainty. 
B) Risk can always be avoided at no cost. 
C) Risk has a time horizon. 
D) Risk usually involves some future payoff. 
A) Risk is a measure of uncertainty. 
B) Risk can always be avoided at no cost. 
C) Risk has a time horizon. 
D) Risk usually involves some future payoff.

Question 6

Which of the following individuals is least likely to use value at risk as an important factor in his/her investment decision?

Accepted Answer

A) An individual considering a mortgage to buy his first home. 
B) A family considering purchasing health insurance. 
C) A policy maker considering regulation of depository institutions. 
D) A mutual fund manager choosing the allocation of investments in the fund's portfolio. 
A) An individual considering a mortgage to buy his first home. 
B) A family considering purchasing health insurance. 
C) A policy maker considering regulation of depository institutions. 
D) A mutual fund manager choosing the allocation of investments in the fund's portfolio.

Question 7

If an investment offered an expected payoff of $100 with $0 variance, you would know that:

Accepted Answer

A) half of the time the payoff is $100 and the other half it is $0. 
B) the payoff is always $100. 
C) half of the time the payoff is $200 and the other half it is $0. 
D) half of the time the payoff is $200 and the other half it is $50. 
A) half of the time the payoff is $100 and the other half it is $0. 
B) the payoff is always $100. 
C) half of the time the payoff is $200 and the other half it is $0. 
D) half of the time the payoff is $200 and the other half it is $50.

Question 8

A risk-averse investor will:

Accepted Answer

A) never prefer an investment with a lower expected return. 
B) always prefer an investment with a certain return to one with the same expected return but that has any amount of uncertainty. 
C) always require a certain return. 
D) always focus exclusively on the expected return. 
A) never prefer an investment with a lower expected return. 
B) always prefer an investment with a certain return to one with the same expected return but that has any amount of uncertainty. 
C) always require a certain return. 
D) always focus exclusively on the expected return.

Question 9

If the probability of an outcome is zero, you know the outcome is:

Accepted Answer

A) more likely to occur. 
B) certain to occur. 
C) less likely to occur. 
D) certain not to occur. 
A) more likely to occur. 
B) certain to occur. 
C) less likely to occur. 
D) certain not to occur.

Question 10

Sometimes spreading has an advantage over hedging to lower risk because:

Accepted Answer

A) it can be difficult to find assets that move predictably in opposite directions. 
B) it is cheaper to spread than hedge. 
C) spreading increases expected returns, hedging does not. 
D) spreading does not affect expected returns. 
A) it can be difficult to find assets that move predictably in opposite directions. 
B) it is cheaper to spread than hedge. 
C) spreading increases expected returns, hedging does not. 
D) spreading does not affect expected returns.

An individual faces two alternatives for an investment.Asset 'A' has the following probability of return schedule: A.

Uncertainties that are not quantifiable:

Explain the following: Risk results from the fact that more outcomes could happen than will happen.

The risk premium for an investment:

Which of the following would not be included in a definition of risk?

Which of the following individuals is least likely to use value at risk as an important factor in his/her investment decision?

If an investment offered an expected payoff of $100 with $0 variance, you would know that:

A risk-averse investor will:

If the probability of an outcome is zero, you know the outcome is:

Sometimes spreading has an advantage over hedging to lower risk because:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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Exam 5: Understanding Risk

An individual faces two alternatives for an investment.Asset 'A' has the following probability of return schedule: A.

Uncertainties that are not quantifiable:

Explain the following: Risk results from the fact that more outcomes could happen than will happen.

The risk premium for an investment:

Which of the following would not be included in a definition of risk?

Which of the following individuals is least likely to use value at risk as an important factor in his/her investment decision?

If an investment offered an expected payoff of $100 with $0 variance, you would know that:

A risk-averse investor will:

If the probability of an outcome is zero, you know the outcome is:

Sometimes spreading has an advantage over hedging to lower risk because:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters