TEST
TESTBANK FORCHAPTER
BANK FOR CHAPTER 4 : UNCERTAINTY
4: Uncertainty
MULTIPLE CHOICE
1. Probability is sometimes defined as
a. the expected profit of a fair bet.
b. the most likely outcome of a given experiment.
c. the outcome that will occur on average for a given experiment.
d. the relative frequency with which an event will occur.
ANS: d
2. Expected value is defined as
a. the profit on a fair bet.
b. the most likely outcome of a given experiment.
c. the outcome that will occur on average for a given experiment.
d. the relative frequency with which an event will occur.
ANS: c
3. If a fair gamble is played many times, the combined monetary losses or gains will
a. approach zero.
b. be negative.
c. be positive.
d. result in an outcome that cannot be determined without more information.
ANS: a
4. People who choose not to participate in fair gambles are called
a. risk takers.
b. risk averse.
c. risk neutral.
d. broke.
ANS: b
5. A gamble can be described as “fair” if the expected value of the gamble (including any
costs of play) is
a. positive.
b. zero.
c. negative.
d. one.
ANS: b
6. Risk aversion is best explained by
a. timidity.
b. increasing marginal utility of income.
c. constant marginal utility of income.
d. decreasing marginal utility of income.
ANS: d
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, 2 Chapter 4: Uncertainty
7. An individual will never buy complete insurance if
a. he or she is risk averse.
b. he or she is a risk taker.
c. insurance premiums are fair.
d. under any circumstances.
ANS: b
8. With moral hazard, fair insurance contracts are not viable because
a. individuals’ aversion to risk is reduced.
b. insurance company’s administrative costs are increased.
c. individuals fear unscrupulous agents.
d. probabilities of loss are increased over what is expected.
ANS: d
9. Risk averse individuals will diversify their investments because this will
a. increase their expected returns.
b. provide them with some much-needed variety.
c. reduce the variability of their returns.
d. reduce their transactions costs.
ANS: c
10. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is
90%. What must the jackpot be for this to be a fair bet?
a. 10
b. 100
c. 1,000
d. 10,000
ANS: a
11. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is
99%. What must the jackpot be for this to be a fair bet?
a. 10
b. 100
c. 1,000
d. 10,000
ANS: b
12. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is
99.9%. What must the jackpot be for this to be a fair bet?
a. 10
b. 100
c. 1,000
d. 10,000
ANS: c
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TESTBANK FORCHAPTER
BANK FOR CHAPTER 4 : UNCERTAINTY
4: Uncertainty
MULTIPLE CHOICE
1. Probability is sometimes defined as
a. the expected profit of a fair bet.
b. the most likely outcome of a given experiment.
c. the outcome that will occur on average for a given experiment.
d. the relative frequency with which an event will occur.
ANS: d
2. Expected value is defined as
a. the profit on a fair bet.
b. the most likely outcome of a given experiment.
c. the outcome that will occur on average for a given experiment.
d. the relative frequency with which an event will occur.
ANS: c
3. If a fair gamble is played many times, the combined monetary losses or gains will
a. approach zero.
b. be negative.
c. be positive.
d. result in an outcome that cannot be determined without more information.
ANS: a
4. People who choose not to participate in fair gambles are called
a. risk takers.
b. risk averse.
c. risk neutral.
d. broke.
ANS: b
5. A gamble can be described as “fair” if the expected value of the gamble (including any
costs of play) is
a. positive.
b. zero.
c. negative.
d. one.
ANS: b
6. Risk aversion is best explained by
a. timidity.
b. increasing marginal utility of income.
c. constant marginal utility of income.
d. decreasing marginal utility of income.
ANS: d
This study source was downloaded by 100000841341657 from CourseHero.com on 03-23-2022 09:46:10 GMT -05:00
1
https://www.coursehero.com/file/12388253/TEST-BANK-FOR-CHAPTER-4/
, 2 Chapter 4: Uncertainty
7. An individual will never buy complete insurance if
a. he or she is risk averse.
b. he or she is a risk taker.
c. insurance premiums are fair.
d. under any circumstances.
ANS: b
8. With moral hazard, fair insurance contracts are not viable because
a. individuals’ aversion to risk is reduced.
b. insurance company’s administrative costs are increased.
c. individuals fear unscrupulous agents.
d. probabilities of loss are increased over what is expected.
ANS: d
9. Risk averse individuals will diversify their investments because this will
a. increase their expected returns.
b. provide them with some much-needed variety.
c. reduce the variability of their returns.
d. reduce their transactions costs.
ANS: c
10. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is
90%. What must the jackpot be for this to be a fair bet?
a. 10
b. 100
c. 1,000
d. 10,000
ANS: a
11. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is
99%. What must the jackpot be for this to be a fair bet?
a. 10
b. 100
c. 1,000
d. 10,000
ANS: b
12. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is
99.9%. What must the jackpot be for this to be a fair bet?
a. 10
b. 100
c. 1,000
d. 10,000
ANS: c
This study source was downloaded by 100000841341657 from CourseHero.com on 03-23-2022 09:46:10 GMT -05:00
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