Quiz 10
Question 1
(1 point)

Economic risk is a situation where:


only outcome possibilities are not known

only outcome probabilities are not known

neither outcome possibilities nor outcome probabilities are known

none of these

Question 2
(1 point)

The difficulty of selling corporate assets at favorable prices under typical market conditions is:


derivative risk

cultural risk

liquidity risk

currency risk

Question 3
(1 point)

Following an increase in the riskfree rate, the certainty equivalent adjustment factor a will:


rise for risk adverse investors

fall for risk adverse investors

fall for risk seeking investors

none of these

Question 4
(1 point)

The minimum expected opportunity loss associated with a decision equals the:


worst outcome under the best case scenario

cost of uncertainty

incremental cost

best outcome under the worst case scenario

Question 5
(1 point)

A probability distribution for total profit is a list of:


possible events

probabilities

possible events and probabilities

occurrences

Question 6
(1 point)

A project with a 75% chance of earning $4,000 in profit and a 25% chance of earning $12,000 in profit has an expected value of:


$8,000

$10,000

$16,000

$6,000

Question 7
(1 point)

A project with a 50% chance of earning $0 and a 50% chance of earning $100 has a standard deviation of:


$100

$50

$75

$0

Question 8
(1 point)

For two projects of differing sizes, the project that is less risky has the:


highest standard deviation

highest coefficient of variation

lowest coefficient of variation

highest expected profit

Question 9
(1 point)

If profits are normally distributed with a mean of $12 and a standard deviation of $4, there is a 50/50 chance actual profits will exceed:


$12

$8

$16

$4

Question 10
(1 point)

Risk neutrality implies a(n):


constant marginal utility of income

diminishing marginal utility of income

increasing marginal utility of income

constant utility of income

Question 11
(1 point)

For a risk seeker the marginal utility of money is:


constant

increasing

positive

diminishing

Question 12
(1 point)

A certaintyequivalent adjustment factor a = 0.8 is consistent with risk:


neutrality

avoidance

preference

seeking

Question 13
(1 point)

If you are indifferent between $1 and a lottery ticket that gives you a 0.001 chance of winning $1,000 you are:


risk neutral

risk averse

risk elastic

a risk seeker

Question 14
(1 point)

To justify an investment that involves an outofpocket cost of $100 and a 50/50 chance of payoffs of $0 or $250, the decision maker must have personal certainty equivalent adjustment factor that is:


a = 0.8

a mc0141.jpg 0.8

a > 0.8

a < 0.8

Question 15
(1 point)

The maximin criterion involves:


minimization of expected opportunity costs

avoidance of the worstcase scenario

acceptance of the bestcase scenario

maximization of expected returns

Question 16
(1 point)

The minimax regret criterion directs the decision maker to select the alternative that:


maximizes opportunity cost

provides the best outcome in the worse case scenario

provides the worst outcome in the best case scenario

minimizes opportunity loss

Question 17
(1 point)

Uncertainty is present when:


outcomes are unknown

all possibilities are unknown

all probabilities are unknown

all of the above

Question 18
(1 point)

When the dispersion of possible returns is irrelevant, the decision maker is said to be:


risk averse

risk neutral

risk seeking

none of these

Question 19
(1 point)

A risk seeking decision maker displays:


increasing marginal utility of income

increasing utility of income

constant marginal utility of income

decreasing marginal utility of income

Question 20
(1 point)

When E(R) = $100,000, only a riskseeking investor would make a certain sum investment in an amount:


greater than $100,000

greater than or equal to $100,000

of $100,000

less than $100,000

Copyright 2008,
by the Contributing Authors.
Cite/attribute Resource
.
admin. (2009, January 27). Quiz 10. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/managerialeconomics/quiz10.htm.
This work is licensed under a
Creative Commons License