multiple choice Interest rates would fall. The effect on the interest rate is un
ID: 1103994 • Letter: M
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multiple choice
Interest rates would fall. The effect on the interest rate is uncertain. c. d· 10. A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today What is the present value of these payments? a. $2,000/(+r) b. $1,000 $1,000/(1 +r) c. $1,000/(S1,000/1r) d. $1,000(1 + r) + $1,000(1+r)2 of 11. Suppose the interest rate is 7 percent. Consider four payment options: Option A: S500 today. Option B: $550 one year from today Option C: $575 two years from today Option D: $600 three years from today Which of the payments has the lowest present value today? a. Option A b. OptionB c. Option C d. Option D 12. Which of the following actions best illustrates moral hazard? a. b. A person adds risky stock to his portfolio. A person who has narrowly avoided many accidents applies for automobile insurance A person is unwilling to buy a stock when she believes its price has an equai chance of rising or falling S10. A person purchases homeowners insurance and then checks his smoke detector batteries less frequently. c. d. 13. Which of the following is adverse selection? the risk associated with selecting stocks in only a few specific companies a. b. the risk that a person will become overconfident in his ability to select stocks a high-risk person being more likely to apply for insurance after obtaining insurance a person having less incentive to be careful c. d. 14. Mario was laid off two months ago. He has not searched for other work because he is expecting to be recalled to work. Mario is counted as a. unemployed and in the labor force. b. unemployed and not in the labor force. c. employed and in the labor force d. not in the labor force. 15. A firm may pay efficiency wages in an attempt to a. reduce incentives to shirk. b. reduce turnover c. attract a well-qualified pool of applicants.Explanation / Answer
Answer 10 : The Present value of the table
PV of the project = 1000+1000/(1+r)
As present value of today 1000 is remain same but present value of after one year payment has been decreased.
Answer 11: Option D is the correct as they provide the least present value today as in the option it shows that PV = FV /(1+R)n
PV =600/(1+0.07)2 = 489.79
Answer 12 : Moral hazard means that they are not taking care of there material. A person purchase home owner insurance and than check least about batteries less frequently because now they are less careful about the system of working.
Answer 13 : Adverse selection is a information that seller have but buyers do not have such information . It must be after obtaining insurance a person is moving less incentive to be careful.
Answer 14 : Mario was laid off two month ago. Mario is counted as unemployed and in the part of labor force.
Answer 15 : A firm may pay efficient wages in an attempt reduced incentives to shrink, reduced turnover or attract a well qualified pool of individuals.
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