Chapter 27 sorich
Amanda talks with several different brokers at a social gathering . She hears the following advice from brokers A , B , and C. Which broker , if any , gave her incorrect advice ?
Broker C : " Stocks with greater risks offer lower average returns . "
If the interest rate is 5 percent , then receiving $ 1,000 eight years from now is worth more than receiving $ 700 today .
False
The fact that we observe a trade - off between risk and return is puzzling to economists , because that observation conflicts with the notion that most people are risk averse .
False
If you believe the stock market is informationally efficient , then it is a waste of time to engage in fundamental analysis .
True
Moral hazard is illustrated by people who take greater risks after they purchase insurance .
True
Ahmet decided to increase the number of stocks in his portfoli
the firm specific risk , but not the market risk of his portfolio .
If the interest rate is 4 percent , then you would be equally happy if you received a gift of either $ 100 today or a gift of
112.49 three years from today .
At an annual interest rate of 10 percent , about how many years will it take $ 100 to double in value ?
7
Which of the following actions best illustrates adverse selection
A high risk person is more likely to apply for insurance .
Suppose the interest rate is 8 percent . Consider four payment options : Option A : $ 500 today . Option B : $ 555 one year from today . Option C : S630 two years from today . Option D : S660 three years from today . Which of the payments has the highest present value today ?
Option B
Which of the following actions best illustrates moral hazard ? Makena knows that people in her family die young , and so she buys life insurance A person adds risky stock to his portfolio . Morgan purposely chooses bonds of corporations with high default risk because of the high returns . Roberto buys home owners insurance and then is less careful to make sure he's put out his cigarettes .
Roberto buys home owners insurance and then is less careful to make sure he's put out his cigarettes .
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 .
True
Suppose you are deciding whether or not to buy a particular bond for $ 5,980.17 . If you buy the bond and hold it for 5 years , then at that time you will receive a payment of $ 10,000 . You will buy the bond today if the interest rate is
no less than 10.83 percent .
Rashad is risk averse and has $ 4,500 with which to make a financial investment . He has three options . Option A is a risk free government bond that pays 8 percent interest each year for two years . Option B is a low - risk stock that analysts expect to be worth about $ 5,248.80 in two years . Option C is a high - risk stock that is expected to be worth about $ 6,122.20 in four years . Rashad should choose
option A.
