Question 1

Loss aversion refers to the idea that people ________.

Accepted Answer

A)  generally tend to avoid risky activities 
B)  are more prone to making losses than gains in day-to-day transactions 
C)  psychologically weight a loss more heavily than they psychologically weight a gain 
D)  are unwilling to undertake expenditures that reduce the probability of future losses

Question 2

Scenario: Three investment options are available in a market. All three options provide the same expected rate of return but have different levels of risk associated with them. Investing in Option A is the riskiest, while investing in Option C is the safest. Option B has a moderate level of risk associated with it.
-Refer to the scenario above.Which investment option will a risk-neutral individual choose?

Accepted Answer

A)  He will choose to invest in Option A. 
B)  He will choose to invest in Option B. 
C)  He will choose to invest in Option C. 
D)  He will be indifferent to investing in any of the three options.

Question 3

Define the discounted value of a future payment.

Accepted Answer

The answer of Define the discounted value of a future...

Question 4

Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year.
-Refer to the scenario above.What is the net present value of the investment?

Accepted Answer

A)  ‒$7,112.36 
B)  ‒$5,365.10 
C)  ‒$475.31 
D)  $9,524.19

Question 5

When economists say that an interest rate is compounding,they imply that ________.

Accepted Answer

A)  the rate of interest is decreasing every year 
B)  the rate of interest is increasing every year 
C)  interest is being earned on a deposit 
D)  the interest payment is doubling every two years

Question 6

Scenario: John is planning to buy a cell phone. The market price of the cell phone is $200. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended warranty for 2 more years at a price of $50. The probability of the phone malfunctioning each year is 20 percent. It is also expected that a similar phone will cost $150 after the end of the first year and $100 after the end of the second year. The current market rate of interest is 10 percent.
-Refer to the scenario above.What is the value of having the extended warranty during the second year of ownership?

Accepted Answer

A)  $16.52 
B)  $24.79 
C)  $40 
D)  $48.75

Question 7

The payment made by a bank to a depositor to use her money to make loans is referred to as ________.

Accepted Answer

A)  dividend 
B)  interest 
C)  principal 
D)  stock

Question 8

The benefit that Jack receives from consuming a portion of French fries is 10 utils.He expects the future health cost of eating French fries to be 20 utils.If Jack discounts delayed utils with a weight of $ \frac{1}{4} $ ,should he consume French fries? Explain your answer.

Accepted Answer

The answer of The benefit that Jack receives from consuming...

Question 9

Which of the following is most likely to increase an individual's future spending?

Accepted Answer

A)  Paying back a loan in the future 
B)  Borrowing money today 
C)  Depositing money in the future 
D)  Withdrawing money in the future

Question 10

Scenario: George deposits $1,000 in a bank for a period of 1 year. After 1 year, he receives $1,300.
-Refer to the scenario above.The interest earned on the sum deposited is ________.

Accepted Answer

A)  $300 
B)  $1,000 
C)  $1,300 
D)  $2,300

Question 11

What is the present value of $10,000 to be received after 1 year if the current annual rate of interest is 6 percent?

Accepted Answer

A)  $8,644.26 
B)  $8,922.34 
C)  $9,433.96 
D)  $10,000

Question 12

Scenario: Consider the following two options. You can either invest $30,000 in a bank that offers you an interest rate of 6 percent compounded annually for 30 years, or you can lend $30,000 to your friend for 30 years at an interest rate of 10 percent compounded annually.
-Refer to the scenario above.Which of the following is true?

Accepted Answer

A)  Investing in the bank will provide you a return of $3,521,725. 
B)  Investing in the bank is comparatively more profitable for you. 
C)  Lending to your friend is comparatively more profitable for you. 
D)  You will receive $563,987.92 from your friend after 30 years.

Question 13

A bag has ten green balls,six blue balls,and forty-four purple balls.A ball is picked randomly from the bag.What is the probability that it is a
a)green ball.
b)blue ball.
c)purple ball.

Accepted Answer

The answer of A bag has ten green balls,six blue...

Question 14

An investment option is profitable if its ________.

Accepted Answer

A)  net present value is zero 
B)  net present value is positive 
C)  net present value is negative 
D)  present value is negative

Question 15

If an individual deposits an amount at a compound interest rate of r percent per year for a time period of T years,then: ________.

Accepted Answer

A)  Future value = (1 − r)ᵀ × (Principal) 
B)  Future value = (1 + r)/T × (Principal) 
C)  Future value = (1 ‒ r)/T × (Principal) 
D)  Future value = (1 + r)ᵀ × (Principal)

Question 16

Scenario: An unbiased coin is tossed, and if the outcome is heads, an individual wins $50. If the outcome is tails, the individual has to pay $50.
-Refer to the scenario above.What is the probability of getting heads?

Accepted Answer

A)  25 percent 
B)  50 percent 
C)  75 percent 
D)  100 percent

Question 17

Scenario: Frank has two options: hot dogs and ice cream. Frank derives a current utility of 8 utils from hot dogs and a current utility of 10 utils from ice cream. He also estimates the delayed costs in terms of health effects from both options. The delayed costs from hot dogs are estimated at 14 utils, and the delayed costs from ice cream are estimated at 12 utils.
-Refer to the scenario above.If Frank discounts delayed utilities with a weight of $ \frac{9}{10} $ ,then which of the following statements is true?

Accepted Answer

A)  He will eat both hot dogs and ice cream. 
B)  He will eat hot dogs but avoid ice cream. 
C)  He will eat ice cream but avoid hot dogs. 
D)  He will avoid consuming both hot dogs and ice cream.

Question 18

Scenario: A box has three green balls, six blue balls, and nine red balls.
-Refer to the scenario above.What is the probability of picking a green ball from the box?

Accepted Answer

A)  12.83 percent 
B)  16.67 percent 
C)  24.75 percent 
D)  32.35 percent

Question 19

Scenario: John is planning to buy a cell phone. The market price of the cell phone is $200. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended warranty for 2 more years at a price of $50. The probability of the phone malfunctioning each year is 20 percent. It is also expected that a similar phone will cost $150 after the end of the first year and $100 after the end of the second year. The current market rate of interest is 10 percent.
-Refer to the scenario above.What is the present value of the benefits of buying the extended warranty?

Accepted Answer

A)  $33.04 
B)  $39.82 
C)  $52.10 
D)  $60

Question 20

Suppose the annual rate of interest is r percent.Which of the following statements is true of the future value of $1,000 for a time of T years?

Accepted Answer

A)  Irrespective of whether the sum of $1,000 is borrowed or lent, the future value in both cases will equal (1 ‒ r)ᵀ × $1,000. 
B)  Irrespective of whether the sum of $1,000 is borrowed or lent, the future value in both cases will equal (1 + r)ᵀ × $1,000. 
C)  If $1,000 is borrowed, the future value will equal (1 + r)ᵀ × $1,000, but if it is lent out, the future value will equal (1 ‒ r)ᵀ × $1,000. 
D)  If $1,000 is borrowed, the future value will equal (1 ‒ r)ᵀ × $1,000, but if it is lent out, the future value will equal (1 + r)ᵀ × $1,000.

Exam 15: Trade-Offs Involving Time and Risk

Loss aversion refers to the idea that people ________.

Define the discounted value of a future payment.

Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year. -Refer to the scenario above.What is the net present value of the investment?

When economists say that an interest rate is compounding,they imply that ________.

The payment made by a bank to a depositor to use her money to make loans is referred to as ________.

The benefit that Jack receives from consuming a portion of French fries is 10 utils.He expects the future health cost of eating French fries to be 20 utils.If Jack discounts delayed utils with a weight of $\frac{1}{4}$ ,should he consume French fries? Explain your answer.

Which of the following is most likely to increase an individual's future spending?

Scenario: George deposits $1,000 in a bank for a period of 1 year. After 1 year, he receives $1,300. -Refer to the scenario above.The interest earned on the sum deposited is ________.

What is the present value of $10,000 to be received after 1 year if the current annual rate of interest is 6 percent?

A bag has ten green balls,six blue balls,and forty-four purple balls.A ball is picked randomly from the bag.What is the probability that it is a a)green ball. b)blue ball. c)purple ball.

An investment option is profitable if its ________.

If an individual deposits an amount at a compound interest rate of r percent per year for a time period of T years,then: ________.

Scenario: An unbiased coin is tossed, and if the outcome is heads, an individual wins $50. If the outcome is tails, the individual has to pay $50. -Refer to the scenario above.What is the probability of getting heads?

Scenario: A box has three green balls, six blue balls, and nine red balls. -Refer to the scenario above.What is the probability of picking a green ball from the box?

Suppose the annual rate of interest is r percent.Which of the following statements is true of the future value of $1,000 for a time of T years?

Exam 15: Trade-Offs Involving Time and Risk

Loss aversion refers to the idea that people ________.

Define the discounted value of a future payment.

Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year. -Refer to the scenario above.What is the net present value of the investment?

When economists say that an interest rate is compounding,they imply that ________.

The payment made by a bank to a depositor to use her money to make loans is referred to as ________.

The benefit that Jack receives from consuming a portion of French fries is 10 utils.He expects the future health cost of eating French fries to be 20 utils.If Jack discounts delayed utils with a weight of 14 \frac{1}{4} 41​ ,should he consume French fries? Explain your answer.

Which of the following is most likely to increase an individual's future spending?

Scenario: George deposits $1,000 in a bank for a period of 1 year. After 1 year, he receives $1,300. -Refer to the scenario above.The interest earned on the sum deposited is ________.

What is the present value of $10,000 to be received after 1 year if the current annual rate of interest is 6 percent?

A bag has ten green balls,six blue balls,and forty-four purple balls.A ball is picked randomly from the bag.What is the probability that it is a a)green ball. b)blue ball. c)purple ball.

An investment option is profitable if its ________.

If an individual deposits an amount at a compound interest rate of r percent per year for a time period of T years,then: ________.

Scenario: An unbiased coin is tossed, and if the outcome is heads, an individual wins $50. If the outcome is tails, the individual has to pay $50. -Refer to the scenario above.What is the probability of getting heads?

Scenario: A box has three green balls, six blue balls, and nine red balls. -Refer to the scenario above.What is the probability of picking a green ball from the box?

Suppose the annual rate of interest is r percent.Which of the following statements is true of the future value of $1,000 for a time of T years?

The benefit that Jack receives from consuming a portion of French fries is 10 utils.He expects the future health cost of eating French fries to be 20 utils.If Jack discounts delayed utils with a weight of $\frac{1}{4}$ ,should he consume French fries? Explain your answer.