multiple choice d. The effect on the thterest lai lI ul 10. A scholarship gives
ID: 1104061 • Letter: M
Question
multiple choice
d. The effect on the thterest lai lI ul 10. A scholarship gives you s1,000 today and promises to pay you S1,000 one year from today. What is the present value of these payments? a. $2,000/ (1 r) b. $1,000 $1,000/(1 r) c. $1,000(1+r) + $1,000 (1+r)2 d. $1,000(1r) $1,0001y 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: S600 three years from today. Which of the payments has the lowest present value today? a. Option A b. Option B c. Option C 12. Which of the following actions best illustrates moral hazard? A person adds risky stock to his portfolio. A 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 equal chance of rising or falling $10. b. c. d. A person purchases homeowners insurance and then checks his smoke detector batteri less frequently. 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 wili 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. b. c. reduce incentives to shirk. reduce turnover. attract a well-qualified pool of applicants.Explanation / Answer
10. Ans: $1,000 + $1,000 / (1+r)
11. Ans: Option D
Explanation:
Option A: PV = $500
Option B: PV = 550 / (1 + 0.07) = $514.02
Option C: PV = 575 / (1 + 0.07)2 = $502.23
Option D: PV = 600 / (1 + 0.07)3 = $489.78
12. Ans: A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.
13. Ans: a high-risk person being more likely to apply for insurance.
14. Ans: Unemployed and in the labor force.
15: Ans: All of the above
Explanation:
Because all options are correct.
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