MCQs of Economics - Risks And Diversification & Efficient Market Hypothesis – Multiple Choice Question

Question 1 of 18

1. Question

The amount today that would be needed, at prevailing interest rates, to produce a particular sum in the future is known as:

future value
fair value
present value
compound value
beginning value

Question 2 of 18

2. Question

If a depositor puts Rs100 in a bank amount that earns 4 percent interest compounded annually, how much will be in the account after five years?

Rs400.00
Rs 104.00
Rs 121.67
Rs 123.98

Question 3 of 18

3. Question

JCB (Which makes agricultural and construction equipment) has the opportunity to purchase a new factory today that will provide them with a Rs50 million return four years from now If prevailing interest rates are 6 percent, what is the maximum that the project can cost for JCB to be willing to undertake the project

Rs 43,456,838
Rs 53,406,002
Rs 34,538,902
Rs 39,604,682

Question 4 of 18

4. Question

An increase in the prevailing interest rate:

increases the present value of future returns from investment and increases investment
decreases the present value of future return from investment and decreases investment
decreases the present value of future returns from investment and increase investment
increases the present value of future returns from investment and decreases investment

Question 5 of 18

5. Question

If two countries start with the same real GDP/person and one country grows at 2 percent while the other grows at 4 percent

one country will always have 2 percent more real GDP/person than the other
the standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth
the standard of living in the two countries will converge
Next year the country growing at 4 percent will have twice the GDP/person as the country growing at 2 percent

Question 6 of 18

6. Question

If people are risk averse, then:

None of these answers are true
All of these answers are true
They dislike bad things more than the like comparable good things
The utility they would lose from losing a Rs50 bet would exceed the utility they would gain from winning a Rs 50 bet
Their utility function exhibit the property of diminishing marginal utility of wealth

Question 7 of 18

7. Question

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

increasing the rate of return within their portfolio
diversifying their portfolio
All of these answers help reduce risk
buying insurance

Question 8 of 18

8. Question

Which of the following is an example of moral hazard?

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

Question 9 of 18

9. Question

Idiosyncratic risk is the:

uncertainty associated with the entire economy
uncertainty associated with specific companies
risk associated with adverse selection
risk associated with moral hazard

Question 10 of 18

10. Question

Diversification of portfolio can:

reduce aggregate risk
eliminate all risk
increase the standard deviation of the portfolio's return
reduce idiosyncratic risk

Question 11 of 18

11. Question

Compared to a portfolio composed entirely of shares a portfolio that is 50 percent government bonds and 50 percent shares will have a

lower return and a lower level or risk
lower return and a higher level of risk
higher return and a lower level or risk
higher return and a higher level of risk

Question 12 of 18

12. Question

The study of a company’s accounting statements and future prospects to determine its value is known as

information analysis
risk management
fundamental analysis
diversification

Question 13 of 18

13. Question

If the efficient markets hypothesis is true, then

shares tend to be overvalued
the stock market is informationally efficient so share prices should follow a random walk
All of these answers
fundamental analysis is a valuable tool for increasing one's returns from investing in shares

Question 14 of 18

14. Question

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

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

Question 15 of 18

15. Question

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

None of these answers
An increase in expected dividends
A reduction in aggregate risk
A reduction in the interest rate
All of these answers

Question 16 of 18

16. Question

Speculative bubbles may occur in the shares market:

during periods of extreme pessimism because so many stocks become undervalued
only when people are irrational
when stocks are fairly valued
because rational people may buy an overvalued share if they think they can sell it to someone for even more at a later date

Question 17 of 18

17. Question

Share prices will follow a random walk if:

shares are overvalued
people behave irrationally when choosing shares
markets reflect all available information in a rational way
shares are undervalued

Question 18 of 18

18. Question

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

stock markets tend to be inefficient
all of these answers
index funds are able to buy undervalued stocks
actively managed funds trade more often and charge fees for their alleged expertise

MCQs of Economics – Risks And Diversification & Efficient Market Hypothesis

Economics - Risks And Diversification & Efficient Market Hypothesis

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