Exam 14: The Basic Tools of Finance: Managing Risk

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including

By diversifying,the risk of holding stock

Matt's Utility Function If Matt's current wealth is $51,000,then

The problem of moral hazard arises because

Risk aversion helps to explain various things we observe in the economy,including

Which of the following is not correct?

Missy recently rearranged her portfolio so that it has a higher average return.As a result of this rearranging,Missy

By holding insurance a person

David's Utility Function If David's current wealth is $61,000,then

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

A risk-averse person has

From the standpoint of the economy as a whole,the role of insurance is

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.The utility function that is shown exhibits the property of diminishing

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Given that Tamar is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Figure 27-5.The figure shows a utility function for Dexter. -Refer to Figure 27-5.In what way(s)does the graph differ from the usual case?

Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50.This implies that Thom's

In general,as a person includes fewer stocks and more bonds in his portfolio,

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.Let 0A represent the distance between the origin and point A;let AB represent the distance between point A and point B;etc.Which of the following ratios best represents the marginal utility per dollar when wealth increases from $400 to $600?

Mary Beth is risk averse and has $1,000 with which to make a financial investment.She has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Mary Beth should choose