Exam%20Practice%20-%20II

Exam%20Practice%20-%20II - Exam II Practice _ 1. The field...

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Exam II Practice ____ 1. The field of finance primarily studies a. how society manages its scarce resources. b. the implications of time and risk for allocating resources over time. c. firms’ decisions concerning how much to produce and what price to charge. d. how society can reduce market risk. ____ 2. Which of the following statements best describes the economist’s view of finance and the financial system? a. The financial system is very important to the functioning of the economy, and the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions. b. The financial system, while interesting, is not very important to the functioning of the economy; however, the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions. c. The financial system is very important to the functioning of the economy; however, the tools of finance are not particularly helpful to us as individuals since we seldom make decisions for which those tools are useful . d. The field of finance is intimately concerned with the financial system and the tools of finance, and financial economists see great importance in them; however, the “mainstream” economist sees little value in studying financial markets or the tools of finance. ____ 3. If a person is risk averse, then as wealth increases, total utility of wealth a. increases at an increasing rate. b. increases at a decreasing rate. c. decreases at an increasing rate. d. decreases at a decreasing rate. ____ 4. Which of the following defines an annuity? a. For a fee, an insurance company provides you with regular income until you die. b. A surcharge is added to life-insurance premiums paid by persons in dangerous occupations. c. Annuity is another name for stock funds managed by mutual fund managers. d. Annuity is another name for any diversified portfolio. ____ 5. In effect, an annuity provides insurance a. against the risk of dying and leaving one’s family without a regular income. b. against the risk of living too long. c. to people who are not risk-averse. d. to people whose utility functions do not display the usual properties. ____ 6. David increases the number of companies in which he holds stocks. a. This reduces risk's standard deviation and firm-specific risk. b. This reduces risk's standard deviation and market risk. c. This raises market risk, but lowers firm-specific risk. What happens to overall risk is unclear. d. This raises firm-specific risk, but lowers market risk. What happens to overall risk is unclear.
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____ 7. Dakota rearranges her portfolio so that it has a higher average return. In doing this rearranging, she a. raised both firm-specific risk and market risk. b.
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Exam%20Practice%20-%20II - Exam II Practice _ 1. The field...

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