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Quiz 10

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Question 1 (1 point)
Economic risk is a situation where:
  1. only outcome possibilities are not known
  2. only outcome probabilities are not known
  3. neither outcome possibilities nor outcome probabilities are known
  4. none of these
Question 2 (1 point)
The difficulty of selling corporate assets at favorable prices under typical market conditions is:
  1. derivative risk
  2. cultural risk
  3. liquidity risk
  4. currency risk
Question 3 (1 point)
Following an increase in the risk-free rate, the certainty equivalent adjustment factor a will:
  1. rise for risk adverse investors
  2. fall for risk adverse investors
  3. fall for risk seeking investors
  4. none of these
Question 4 (1 point)
The minimum expected opportunity loss associated with a decision equals the:
  1. worst outcome under the best case scenario
  2. cost of uncertainty
  3. incremental cost
  4. best outcome under the worst case scenario
Question 5 (1 point)
A probability distribution for total profit is a list of:
  1. possible events
  2. probabilities
  3. possible events and probabilities
  4. 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:
  1. $8,000
  2. $10,000
  3. $16,000
  4. $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:
  1. $100
  2. $50
  3. $75
  4. $0
Question 8 (1 point)
For two projects of differing sizes, the project that is less risky has the:
  1. highest standard deviation
  2. highest coefficient of variation
  3. lowest coefficient of variation
  4. 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:
  1. $12
  2. $8
  3. $16
  4. $4
Question 10 (1 point)
Risk neutrality implies a(n):
  1. constant marginal utility of income
  2. diminishing marginal utility of income
  3. increasing marginal utility of income
  4. constant utility of income
Question 11 (1 point)
For a risk seeker the marginal utility of money is:
  1. constant
  2. increasing
  3. positive
  4. diminishing
Question 12 (1 point)
A certainty-equivalent adjustment factor a = 0.8 is consistent with risk:
  1. neutrality
  2. avoidance
  3. preference
  4. 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:
  1. risk neutral
  2. risk averse
  3. risk elastic
  4. a risk seeker
Question 14 (1 point)
To justify an investment that involves an out-of-pocket 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:
  1. a = 0.8
  2. a mc014-1.jpg 0.8
  3. a > 0.8
  4. a < 0.8
Question 15 (1 point)
The maximin criterion involves:
  1. minimization of expected opportunity costs
  2. avoidance of the worst-case scenario
  3. acceptance of the best-case scenario
  4. maximization of expected returns
Question 16 (1 point)
The minimax regret criterion directs the decision maker to select the alternative that:
  1. maximizes opportunity cost
  2. provides the best outcome in the worse case scenario
  3. provides the worst outcome in the best case scenario
  4. minimizes opportunity loss
Question 17 (1 point)
Uncertainty is present when:
  1. outcomes are unknown
  2. all possibilities are unknown
  3. all probabilities are unknown
  4. all of the above
Question 18 (1 point)
When the dispersion of possible returns is irrelevant, the decision maker is said to be:
  1. risk averse
  2. risk neutral
  3. risk seeking
  4. none of these
Question 19 (1 point)
A risk seeking decision maker displays:
  1. increasing marginal utility of income
  2. increasing utility of income
  3. constant marginal utility of income
  4. decreasing marginal utility of income
Question 20 (1 point)
When E(R) = $100,000, only a risk-seeking investor would make a certain sum investment in an amount:
  1. greater than $100,000
  2. greater than or equal to $100,000
  3. of $100,000
  4. 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/managerial-economics/quiz10.htm. This work is licensed under a Creative Commons License Creative Commons License