Question 1

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that ...

Question 2

As the interest rate increases,what happens to the present value of a future payment?
 Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces...

Question 3

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

Accepted Answer

A)  adherence to the old adage,"Don't put all your eggs in one basket."
B)  insurance.
C)  the risk-return trade-off.
D)  All of the above are correct.E) C) and D)
F) A) and D)

Question 4

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

Accepted Answer

A) True 
 B)False

Question 5

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Accepted Answer

A)  market risk by more than an increase from 110 to 120.
B)  market risk by less than an increase from 110 to 120.
C)  firm-specific risk by more than an increase from 110 to 120.
D)  firm-specific risk by less than an increase from 110 to 120.E) None of the above
F) A) and B)

Question 6

Imagine that someone offers you X dinars today or 1,500 dinars in 5 years.If the interest rate is 6 percent,then you would prefer to take the X today if and only if

Accepted Answer

A)  X > 1,055.56.
B)  X > 1,120.89.
C)  X > 1,213.33.
D)  X > 1,338.26.E) C) and D)
F) All of the above

Question 7

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

Accepted Answer

A)  rises,so investment spending rises.
B)  falls,so investment spending rises.
C)  rises,so investment spending falls.
D)  falls,so investment spending falls.E) C) and D)
F) A) and C)

Exam 27: The Basic Tools of Finance

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct Answer
verified

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

Correct Answer
verified

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

Correct Answer
verified

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

Correct Answer
verified

Imagine that someone offers you X dinars today or 1,500 dinars in 5 years.If the interest rate is 6 percent,then you would prefer to take the X today if and only if

Correct Answer
verified

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct Answer
verified
An example of adverse selection is that ...
View Answer

Exam 27: The Basic Tools of Finance

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct AnswerverifiedShow Answer

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

Correct AnswerverifiedShow Answer

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct AnswerverifiedAn increase in the interest rate reduces...View AnswerShow Answer

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Imagine that someone offers you X dinars today or 1,500 dinars in 5 years.If the interest rate is 6 percent,then you would prefer to take the X today if and only if

Correct AnswerverifiedShow Answer

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct AnswerverifiedAn example of adverse selection is that ...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An example of adverse selection is that ...
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