Exam 16: Uncertainty

Bob has an initial wealth of $1200 but faces a 50% chance of losing $800 to doctors' bills in the coming year.Insurance is available at a rate of 60¢ per $1 of coverage.This means that if Bob purchases $X in coverage,it costs 6X¢ and pays $X towards Bob's doctors' bills.If Bob's utility function is U(w)= 2 ,how much insurance (X)will Bob purchase?

(Essay)

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Question 81

Concerning an investment project,which of the following is TRUE?

(Multiple Choice)

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Question 82

Catherine is risk averse.When faced with a choice between a gamble and a certain level of wealth,she will

(Multiple Choice)

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Question 83

Buying a diversified mutual stock fund allows you to

(Multiple Choice)

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Question 84

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

(True/False)

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Question 85

If insurance is fairly priced,a risk-averse individual will purchase enough insurance to cover the full amount of the possible loss.

(True/False)

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Question 86

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

(Essay)

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Question 87

-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

(Multiple Choice)

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Question 88

Explain why the rate of return from investing in stocks is higher than from investing in bonds.

(Essay)

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Question 89

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

(Essay)

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Question 90

Empirical evidence suggests that usury laws

(Multiple Choice)

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Question 91

If Ann's utility function is U = W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

(Multiple Choice)

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Question 92

-Bob's utility function is shown in the above Figure.He currently has $100 worth of property,but there is a 50% chance that all of it will be stolen.An insurance company offers to reimburse Bob for his loss if the money is stolen.What is the most that Bob would pay for such a policy? Explain.

(Essay)

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Question 93

If Ann's utility function is U = W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected utility is

(Multiple Choice)

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Question 94

If a payout is certain to occur,then the variance of that payout equals

(Multiple Choice)

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Question 95

-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 is risk averse because

(Multiple Choice)

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Question 96

-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.If Bob could keep $50 with certainty,his utility would be

(Multiple Choice)

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Question 97

Stephan has the utility function U(w)= 3 ,where w is his wealth.Initially,Stephan has w = $100.Would Stephan pay $5 to take the following gamble: With probability 0.03 he wins $25;otherwise,he wins nothing.

(Essay)

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Question 98

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.When Sarah buys her next stuffed animal,the expected profit is

(Multiple Choice)

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Question 99

Alvin's utility function is U = W.Barry's utility function is U = W².Carl's utility function is U = W^0.5.Each has wealth of only $100.An investment of that $100 has a 10% chance of netting $1,000 and a 90% chance of netting a loss of that $100.Who among the three will make the investment?

(Essay)

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Question 100

Showing 81 - 100 of 103

Concerning an investment project,which of the following is TRUE?

Catherine is risk averse.When faced with a choice between a gamble and a certain level of wealth,she will

Buying a diversified mutual stock fund allows you to

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

If insurance is fairly priced,a risk-averse individual will purchase enough insurance to cover the full amount of the possible loss.

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

-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

Explain why the rate of return from investing in stocks is higher than from investing in bonds.

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

Empirical evidence suggests that usury laws

If Ann's utility function is U = W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

-Bob's utility function is shown in the above Figure.He currently has $100 worth of property,but there is a 50% chance that all of it will be stolen.An insurance company offers to reimburse Bob for his loss if the money is stolen.What is the most that Bob would pay for such a policy? Explain.

If Ann's utility function is U = W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected utility is

If a payout is certain to occur,then the variance of that payout equals

-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 is risk averse because

-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.If Bob could keep $50 with certainty,his utility would be

Stephan has the utility function U(w)= 3 ,where w is his wealth.Initially,Stephan has w = $100.Would Stephan pay $5 to take the following gamble: With probability 0.03 he wins $25;otherwise,he wins nothing.

Alvin's utility function is U = W.Barry's utility function is U = W².Carl's utility function is U = W^0.5.Each has wealth of only $100.An investment of that $100 has a 10% chance of netting $1,000 and a 90% chance of netting a loss of that $100.Who among the three will make the investment?

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 16: Uncertainty

Concerning an investment project,which of the following is TRUE?

Catherine is risk averse.When faced with a choice between a gamble and a certain level of wealth,she will

Buying a diversified mutual stock fund allows you to

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

If insurance is fairly priced,a risk-averse individual will purchase enough insurance to cover the full amount of the possible loss.

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

-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

Explain why the rate of return from investing in stocks is higher than from investing in bonds.

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

Empirical evidence suggests that usury laws

If Ann's utility function is U = W0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

-Bob's utility function is shown in the above Figure.He currently has $100 worth of property,but there is a 50% chance that all of it will be stolen.An insurance company offers to reimburse Bob for his loss if the money is stolen.What is the most that Bob would pay for such a policy? Explain.

If Ann's utility function is U = W0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected utility is

If a payout is certain to occur,then the variance of that payout equals

-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 is risk averse because

-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.If Bob could keep $50 with certainty,his utility would be

Stephan has the utility function U(w)= 3 ,where w is his wealth.Initially,Stephan has w = $100.Would Stephan pay $5 to take the following gamble: With probability 0.03 he wins $25;otherwise,he wins nothing.

Alvin's utility function is U = W.Barry's utility function is U = W2.Carl's utility function is U = W0.5.Each has wealth of only $100.An investment of that $100 has a 10% chance of netting $1,000 and a 90% chance of netting a loss of that $100.Who among the three will make the investment?

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

If Ann's utility function is U = W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

If Ann's utility function is U = W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected utility is

Alvin's utility function is U = W.Barry's utility function is U = W².Carl's utility function is U = W^0.5.Each has wealth of only $100.An investment of that $100 has a 10% chance of netting $1,000 and a 90% chance of netting a loss of that $100.Who among the three will make the investment?