Chapter 27 MACRO

The future value of a deposit in a savings account will be larger

• the longer a person waits to withdraw the funds.

• the higher the interest rate is.

• the larger the initial deposit is.

• All of the above are correct.

Which of the following best illustrates adverse selection?

• A person adds risky stock to their portfolio.

• A person knows that they have lost a lot of jewelry in the past buys insurance when she buys a new set of expensive earrings.

• A person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10.

• A person gets homeowners insurance and then checks their smoke detector batteries less frequently.

Which of the following best illustrates moral hazard?

• After a person obtains life insurance, she takes up skydiving.

• A person obtains insurance knowing he is in poor health.

• A person holds stock only in very risky corporations

• A person holds stocks from only a few corporations.

What is the name of the rule about the time it takes to double your money?

• The Rule of 70

• The Rule of 72

• The Rule of 80

• The Rule of 75

For a risk averse person,

• the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.

• the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.

• the utility function exhibits the property of increasing marginal utility of wealth.

• the utility function exhibits the property of constant marginal utility of wealth.

You have cell phone insurance on your phone, so you don't use a case or screen protector since the insurance will pay for a new screen. This is an example of

• Moral Hazard

• Adverse Selection.

Your sister buys a dog that is prone to have a bad back so it has to go to the doggie chiropractor a lot. She buys vet insurance. This is an example of

• Moral Hazard

• Adverse Selection

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

• both the firm-specific risk and the market risk of his portfolio.

• the firm-specific risk, but not the market risk of his portfolio

• the market risk, but not the firm-specific risk of his portfolio.

• neither the market risk nor the firm-specific risk of his portfolio.

According to the efficient markets hypothesis, worse-than-expected news about a corporation will

• have no effect on its stock price.

• raise the price of the stock.

• lower the price of the stock.

• change the price of the stock in a random direction.

What is the formula for the future value of $100?

• 100(1 +r )ⁿ

• 100∕(1+r)ⁿ

• 1(100 + r)ⁿ

• 1∕(100 + r)ⁿ