Economics Mcqs
Which of the following reduces risk in a portfolio the greatest ?

A. Increasing the number of shares from 10 to 20
B. All of these answers provide the same amount of risk reduction
C. Increasing the number of shares in the portfolio from 1 to 10
D. Increasing the number of shares from 20 to 30

If people are risk averse, then ?

A. None of these answers are true
B. All of these answers are true
C. They dislike bad things more than the like comparable good things
D. The utility they would lose from losing a rs50 bet would exceed the utility they would gain from winning a rs 50 bet

Which of the following is an example of moral hazard ?

A. After gull buys fire insurance, he begins to smoke cigarettes in bed.
B. None of these answers demonstrate moral hazard
C. Mahmood has been feeling poorly lately so he seeks health insurance
D. All of these answers demonstrate moral hazard

Diversification of portfolio can ?

A. Reduce aggregate risk
B. Eliminate all risk
C. Increase the standard deviation of the portfolio’s return
D. Reduce idiosyncratic risk

Which of the following should cause the price of a share of stock to rise ?

A. none of these answers
B. an increase in expected dividends
C. a reduction in aggregate risk
D. a reduction in the interest rate

Share prices will follow a random walk if ?

A. Shares are overvalued
B. People behave irrationally when choosing shares
C. Markets reflect all available information in a rational way
D. Shares are undervalued

It is difficult for an actively managed investment fund to outperform an index fund because ?

A. Stock markets tend to be inefficient
B. All of these answers
C. Index funds are able to buy undervalued stocks
D. Actively managed funds trade more often and charge fees for their alleged expertise

An increase in the prevailing interest rate ?

A. Increases the present value of future returns from investment and increases investment
B. Decreases the present value of future return from investment and decreases investment
C. Decreases the present value of future returns from investment and increase investment
D. Increases the present value of future returns from investment and decreases investment

Which of the following does not help reduce the risk that people face ?

A. Increasing the rate of return within their portfolio
B. Diversifying their portfolio
C. All of these answers help reduce risk
D. Buying insurance