Question 1

Two variables are uncorrelated if

Accepted Answer

A)  They move in the same direction 
B)  They move in the opposite direction 
C)  Their movements tend to be unrelated 
D)  One is simply a multiple of the other 
A)  They move in the same direction 
B)  They move in the opposite direction 
C)  Their movements tend to be unrelated 
D)  One is simply a multiple of the other

Question 2

-Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's (dotted)in Figure g.Millie

Accepted Answer

A)  Is more risk averse than Lily 
B)  Is less risk averse than Lily 
C)  Has a larger risk premium than Lily 
D)  Has a lower certainty equivalent than Lily 
A)  Is more risk averse than Lily 
B)  Is less risk averse than Lily 
C)  Has a larger risk premium than Lily 
D)  Has a lower certainty equivalent than Lily

Question 3

-Refer to Figure a.If   decreases,the x-intercept for the constant expected consumption line

Accepted Answer

A)  Increases 
B)  Decreases 
C)  Does not change 
D)  Cannot be determined without more information 
A)  Increases 
B)  Decreases 
C)  Does not change 
D)  Cannot be determined without more information

Question 4

-Refer to Figures d and e.Water is crucial for survival,but it is particularly valuable during a drought when water is scarce.The probability of a drought is (1-P),WD represents the quantity of water in a drought,while WR represents the quantity of water in a rainy season.Which set of indifference curves above best represent a relatively high probability of a drought?

Accepted Answer

A)  Figure d 
B)  Figure e 
C)  Probabilities do not influence indifference curves 
D)  Neither 
A)  Figure d 
B)  Figure e 
C)  Probabilities do not influence indifference curves 
D)  Neither

Question 5

-Refer to Figure f.A benefit function is plotted in Figure f.Point B represents the

Accepted Answer

A)  Risk premium of the consumption bundle 
B)  Expected utility of the consumption bundle 
C)  Certainty equivalent of the consumption bundle 
D)  Expected consumption 
A)  Risk premium of the consumption bundle 
B)  Expected utility of the consumption bundle 
C)  Certainty equivalent of the consumption bundle 
D)  Expected consumption

Question 6

What is the certainty equivalent of the bundle described in problem 15?

Accepted Answer

A)  49 
B)  52 
C)  7 
D)  25 
A)  49 
B)  52 
C)  7 
D)  25

Question 7

Brandon's risk premium given the information in problem 25 is

Accepted Answer

A)  250 
B)  325 
C)  17.5 
D)  18.75 
A)  250 
B)  325 
C)  17.5 
D)  18.75

Question 8

-Refer to Figure f.A benefit function is plotted in Figure f.The distance C represents the

Accepted Answer

A)  Risk premium of the consumption bundle 
B)  Expected utility of the consumption bundle 
C)  Certainty equivalent of the consumption bundle 
D)  Expected consumption 
A)  Risk premium of the consumption bundle 
B)  Expected utility of the consumption bundle 
C)  Certainty equivalent of the consumption bundle 
D)  Expected consumption

Question 9

If two investments are perfectly positively correlated

Accepted Answer

A)  There is no benefit from diversification 
B)  Bets are perfectly hedged and risks are canceled out 
C)  Diversification reduces risk without changing the expected payoff 
D)  Diversification reduces both risk and the expected payoff 
A)  There is no benefit from diversification 
B)  Bets are perfectly hedged and risks are canceled out 
C)  Diversification reduces risk without changing the expected payoff 
D)  Diversification reduces both risk and the expected payoff

Question 10

Two variables are negatively correlated if

Accepted Answer

A)  They move in the same direction 
B)  They move in the opposite direction 
C)  Their movements tend to be unrelated 
D)  One is simply a multiple of the other 
A)  They move in the same direction 
B)  They move in the opposite direction 
C)  Their movements tend to be unrelated 
D)  One is simply a multiple of the other

Question 11

Suppose Lily's indifference curves are defined as   where C is a constant.Lily receives 64 units of food when it is sunny,FS and 16 units of food when there is a hurricane,FH.If the probability of sunshine is P = 0.75,the expected consumption is

Accepted Answer

A)  52 
B)  28 
C)  40 
D)  5 
A)  52 
B)  28 
C)  40 
D)  5

Question 12

What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?

Accepted Answer

A)  $325 
B)  $5,500 
C)  $1,175 
D)  $2,750 
A)  $325 
B)  $5,500 
C)  $1,175 
D)  $2,750

Question 13

A person is risk neutral if

Accepted Answer

A)  Her indifference curve is concave to the origin 
B)  Her indifference curve is convex to the origin 
C)  Her indifference curve coincides with the expected consumption line 
D)  Her indifference curve coincides with guaranteed consumption line 
A)  Her indifference curve is concave to the origin 
B)  Her indifference curve is convex to the origin 
C)  Her indifference curve coincides with the expected consumption line 
D)  Her indifference curve coincides with guaranteed consumption line

Question 14

-Refer to Figure f.A benefit function,W(F),is plotted in Figure f.Point A represents the

Accepted Answer

A)  Risk premium of the consumption bundle 
B)  Expected utility of the consumption bundle 
C)  Certainty equivalent of the consumption bundle 
D)  Expected consumption 
A)  Risk premium of the consumption bundle 
B)  Expected utility of the consumption bundle 
C)  Certainty equivalent of the consumption bundle 
D)  Expected consumption

Question 15

-Refer to Figures b and c.In the figures above,the probability of sunny weather,P,is higher in

Accepted Answer

A)  Figure b 
B)  Figure c 
C)  P does not influence the slope of the indifference curve 
D)  Bundle A versus C in either figure 
A)  Figure b 
B)  Figure c 
C)  P does not influence the slope of the indifference curve 
D)  Bundle A versus C in either figure

Question 16

What is the expected payoff of an investment that yields $1,000,000 with a probability of 0.001 and $0 with a probability of 0.999?

Accepted Answer

A)  $1,000,000 
B)  $1,000 
C)  $10,000 
D)  $500,000 
A)  $1,000,000 
B)  $1,000 
C)  $10,000 
D)  $500,000

Question 17

If two investments are uncorrelated

Accepted Answer

A)  There is no benefit from diversification 
B)  There is no benefit to hedging 
C)  Diversification reduces risk without changing the expected payoff 
D)  Diversification reduces both risk and the expected payoff 
A)  There is no benefit from diversification 
B)  There is no benefit to hedging 
C)  Diversification reduces risk without changing the expected payoff 
D)  Diversification reduces both risk and the expected payoff

Question 18

What is the standard deviation of the investment payoff described in problem 6?

Accepted Answer

A)  $999000 
B)  $1000 
C)  $999,000,000 
D)  $31,607 
A)  $999000 
B)  $1000 
C)  $999,000,000 
D)  $31,607

Question 19

-Refer to Figure b.Suppose consumers choose to consume food in two different states,sunny weather,FS and during a hurricane,FH.As the consumer moves from point A to B along the indifference curve,the variability of consumption

Accepted Answer

A)  Decreases 
B)  Increases 
C)  Remains constant 
D)  Increases for one good, but decreases for the other 
A)  Decreases 
B)  Increases 
C)  Remains constant 
D)  Increases for one good, but decreases for the other

Question 20

If two investments are perfectly negatively correlated

Accepted Answer

A)  Diversification is not effective at reducing risk 
B)  Bets are perfectly hedged and risks are canceled out 
C)  Diversification reduces risk without changing the expected payoff 
D)  Diversification reduces both risk and the expected payoff 
A)  Diversification is not effective at reducing risk 
B)  Bets are perfectly hedged and risks are canceled out 
C)  Diversification reduces risk without changing the expected payoff 
D)  Diversification reduces both risk and the expected payoff

Two variables are uncorrelated if

-Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's (dotted)in Figure g.Millie

-Refer to Figure a.If decreases,the x-intercept for the constant expected consumption line

-Refer to Figure f.A benefit function is plotted in Figure f.Point B represents the

What is the certainty equivalent of the bundle described in problem 15?

Brandon's risk premium given the information in problem 25 is

-Refer to Figure f.A benefit function is plotted in Figure f.The distance C represents the

If two investments are perfectly positively correlated

Two variables are negatively correlated if

Suppose Lily's indifference curves are defined as where C is a constant.Lily receives 64 units of food when it is sunny,F_S and 16 units of food when there is a hurricane,F_H.If the probability of sunshine is P = 0.75,the expected consumption is

What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?

A person is risk neutral if

-Refer to Figure f.A benefit function,W(F),is plotted in Figure f.Point A represents the

-Refer to Figures b and c.In the figures above,the probability of sunny weather,P,is higher in

What is the expected payoff of an investment that yields $1,000,000 with a probability of 0.001 and $0 with a probability of 0.999?

If two investments are uncorrelated

What is the standard deviation of the investment payoff described in problem 6?

-Refer to Figure b.Suppose consumers choose to consume food in two different states,sunny weather,F_S and during a hurricane,F_H.As the consumer moves from point A to B along the indifference curve,the variability of consumption

If two investments are perfectly negatively correlated

Introduction

Supply and Demand3

Balancing Benefits and Costs

Principles and Preferences

Constraints, Choices, and Demand

Rom Demand to Welfare

Technology and Production

Cost

Rofit Maximization

Choices Involving Time

Choices Involving Strategy

Behavioral Economics

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Filters

Exam 11: Choices Involving Risk

Two variables are uncorrelated if

-Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's (dotted)in Figure g.Millie

-Refer to Figure a.If decreases,the x-intercept for the constant expected consumption line

-Refer to Figure f.A benefit function is plotted in Figure f.Point B represents the

What is the certainty equivalent of the bundle described in problem 15?

Brandon's risk premium given the information in problem 25 is

-Refer to Figure f.A benefit function is plotted in Figure f.The distance C represents the

If two investments are perfectly positively correlated

Two variables are negatively correlated if

Suppose Lily's indifference curves are defined as where C is a constant.Lily receives 64 units of food when it is sunny,FS and 16 units of food when there is a hurricane,FH.If the probability of sunshine is P = 0.75,the expected consumption is

What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?

A person is risk neutral if

-Refer to Figure f.A benefit function,W(F),is plotted in Figure f.Point A represents the

-Refer to Figures b and c.In the figures above,the probability of sunny weather,P,is higher in

What is the expected payoff of an investment that yields $1,000,000 with a probability of 0.001 and $0 with a probability of 0.999?

If two investments are uncorrelated

What is the standard deviation of the investment payoff described in problem 6?

-Refer to Figure b.Suppose consumers choose to consume food in two different states,sunny weather,FS and during a hurricane,FH.As the consumer moves from point A to B along the indifference curve,the variability of consumption

If two investments are perfectly negatively correlated

Introduction

Supply and Demand3

Balancing Benefits and Costs

Principles and Preferences

Constraints, Choices, and Demand

Rom Demand to Welfare

Technology and Production

Cost

Rofit Maximization

Choices Involving Time

Choices Involving Strategy

Behavioral Economics

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Filters

Suppose Lily's indifference curves are defined as where C is a constant.Lily receives 64 units of food when it is sunny,F_S and 16 units of food when there is a hurricane,F_H.If the probability of sunshine is P = 0.75,the expected consumption is

-Refer to Figure b.Suppose consumers choose to consume food in two different states,sunny weather,F_S and during a hurricane,F_H.As the consumer moves from point A to B along the indifference curve,the variability of consumption