Question 1

The future value of a deposit is:

Accepted Answer

A)   PV * (1 + r)  * n, where r = interest rate, n = periods, and PV = present value.
B)   PV * (1 + r) n, where r = interest rate, n = periods, and PV = present value.
C)   PV * rn, where r = interest rate, n = periods, and PV = present value.
D)   PV/(1 + r) n, where r = interest rate, n = periods, and PV = present value.E) A) and D)
F) B) and C)

Question 2

Insurance policies can be bought to cover unexpected costs due to which kind of risk?

Accepted Answer

A)   Fire damage to your home
B)   Automobile theft
C)   Fighting a rare disease
D)   Individuals can buy insurance to cover all these risks.E) A) and B)
F) All of the above

Question 3

Risk pooling:

Accepted Answer

A)   reduces the chances of catastrophes happening.
B)   lowers the costs of catastrophes when they occur.
C)   allows individuals the peace of mind that they will never have to pay the full expense of a catastrophe if it hits them.
D)   All of these statements are true.E) None of the above
F) B) and D)

Question 4

Risk pooling:

Accepted Answer

A)   assures the individuals that they are less likely to have a catastrophe occur.
B)   reduces the risk of catastrophes happening collectively to groups.
C)   doesn't reduce the chances of catastrophes happening to individuals.
D)   None of these statements is true.E) A) and D)
F) None of the above

Question 5

The present value of $500,000 in 4 years at 7 percent interest is approximately:

Accepted Answer

A)   $381,448.
B)   $655,398.
C)   $344,682.
D)   None of these statements is true.E) All of the above
F) A) and B)

Question 6

Insurance companies:

Accepted Answer

A)   profit from the difference between the premiums paid and the expected value of clients' payouts.
B)   only profit by selling to risk neutral clients.
C)   must charge less than the expected value of payout, otherwise they would go out of business.
D)   All of these statements are true.E) A) and B)
F) A) and C)

Question 7

Investing in things with unrelated risk is:

Accepted Answer

A)   the key to diversification.
B)   irrational.
C)   increasing the likelihood that a catastrophe will occur.
D)   None of these statements is true.E) All of the above
F) C) and D)

Question 8

The amount of interest owed on a loan of $100,000 after a year at an interest rate of 3 percent is:

Accepted Answer

A)   $3,000.
B)   $30,000.
C)   $103,000.
D)   $100,300.E) B) and C)
F) A) and B)

Question 9

Suppose Jack and Kate are at the town fair and are choosing which game to play.The first game has a bag with four marbles in it-1 red marble and 3 blue ones.The player draws one marble from the bag; if it is red,they win $20 and if it is blue,they win $1.The second game has a bag with 10 marbles in it-1 red,4 blue,and 5 green.The player draws one marble from the bag; if it is red,they win $20; if it is blue,they win $5; and if it is green,they win $1.Both games cost $5 to play.Kate decides to play the second game.Kate's expected value of payoff is:

Accepted Answer

A)   $5.00.
B)   $5.75.
C)   $4.50.
D)   $4.00.E) A) and B)
F) A) and C)

Question 10

In general,the amount people pay for insurance is:

Accepted Answer

A)   lower than its expected value.
B)   higher than its expected value.
C)   higher than its future value.
D)   lower than its present value.E) All of the above
F) A) and D)

Question 11

A mechanism for reallocating risk is:

Accepted Answer

A)   risk pooling.
B)   dividend pooling.
C)   risk premiums.
D)   None of these statements is true.E) None of the above
F) A) and B)

Question 12

Someone is considered to exhibit risk-seeking behavior if he:

Accepted Answer

A)   has a high willingness to take on situations with risk.
B)   has a low willingness to take on situations with risk.
C)   will only participate in high-risk situations.
D)   will always choose the riskier venture when given two choices.E) All of the above
F) A) and B)

Question 13

The interest rate:

Accepted Answer

A)   is expressed as a percentage per dollar borrowed and per unit of time.
B)   tells us how much less money is worth today than in the future.
C)   exists only because lending is risky.
D)   All of these statements are true.E) None of the above
F) A) and B)

Question 14

Economists believe that individuals:

Accepted Answer

A)   have varying tastes for taking on financial risks, but are risk-averse in general.
B)   have the same tastes for taking on financial risks, and are risk-averse in general.
C)   have varying tastes for taking on financial risks, but are risk-seekers in general.
D)   have the same tastes for taking on financial risks, and are risk-seekers in general.E) B) and D)
F) A) and D)

Question 15

Suppose Jack and Kate are at the town fair and are choosing which game to play.The first game has a bag with four marbles in it-1 red marble and 3 blue ones.The player draws one marble from the bag; if it is red,they win $20 and if it is blue,they win $1.The second game has a bag with 10 marbles in it-1 red,4 blue,and 5 green.The player draws one marble from the bag; if it is red,they win $20; if it is blue,they win $5; and if it is green,they win $1.Both games cost $5 to play.Jack decides to play the first game,and Kate decides to play the second game as described in the scenario.The expected value of the payoff:

Accepted Answer

A)   is higher for Jack than for Kate.
B)   is lower for Jack than for Kate.
C)   is the same in both games, because there's only one red marble.
D)   is higher in the second game because half the marbles entail a payback of at least what she pays to play the game.E) A) and C)
F) A) and B)

Question 16

People cope with uncertainty about the future:

Accepted Answer

A)   exactly the same way, regardless of the situation.
B)   in very similar ways, regardless of the situation.
C)   in many ways, such as buying insurance.
D)   by always avoiding it.E) B) and C)
F) A) and B)

Question 17

The fee that insurance companies collect in exchange for covering unpredictable costs is called a:

Accepted Answer

A)   premium.
B)   ultimatum.
C)   prepaid event charge.
D)   preventative payment.E) A) and B)
F) A) and C)

Exam 11: Time and Uncertainty

Insurance companies:

Correct Answer
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A mechanism for reallocating risk is:

Correct Answer
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The present value of $500,000 in 4 years at 7 percent interest is approximately:

Correct Answer
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Correct Answer
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Investing in things with unrelated risk is:

Correct Answer
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The interest rate:

Correct Answer
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Economists believe that individuals:

Correct Answer
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In general,the amount people pay for insurance is:

Correct Answer
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Correct Answer
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People cope with uncertainty about the future:

Correct Answer
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The future value of a deposit is:

Correct Answer
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Risk pooling:

Correct Answer
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Someone is considered to exhibit risk-seeking behavior if he:

Correct Answer
verified

The fee that insurance companies collect in exchange for covering unpredictable costs is called a:

Correct Answer
verified

Insurance policies can be bought to cover unexpected costs due to which kind of risk?

Correct Answer
verified

The amount of interest owed on a loan of $100,000 after a year at an interest rate of 3 percent is:

Correct Answer
verified

Risk pooling:

Correct Answer
verified

Exam 11: Time and Uncertainty

Insurance companies:

Correct AnswerverifiedShow Answer

A mechanism for reallocating risk is:

Correct AnswerverifiedShow Answer

The present value of $500,000 in 4 years at 7 percent interest is approximately:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Investing in things with unrelated risk is:

Correct AnswerverifiedShow Answer

The interest rate:

Correct AnswerverifiedShow Answer

Economists believe that individuals:

Correct AnswerverifiedShow Answer

In general,the amount people pay for insurance is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

People cope with uncertainty about the future:

Correct AnswerverifiedShow Answer

The future value of a deposit is:

Correct AnswerverifiedShow Answer

Risk pooling:

Correct AnswerverifiedShow Answer

Someone is considered to exhibit risk-seeking behavior if he:

Correct AnswerverifiedShow Answer

The fee that insurance companies collect in exchange for covering unpredictable costs is called a:

Correct AnswerverifiedShow Answer

Insurance policies can be bought to cover unexpected costs due to which kind of risk?

Correct AnswerverifiedShow Answer

The amount of interest owed on a loan of $100,000 after a year at an interest rate of 3 percent is:

Correct AnswerverifiedShow Answer

Risk pooling:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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