An investor has to choose between stocks A&B, each selling for 10 . Stock A, can either increase in price to 12, with a 50 probability or stay at 10 with a 50 probability. Stock B can either increase in price to 15 with a 50 probability or go down to 7 with a 50 probability. Which of the stocks would the investor choose
a. Stock A
b. Stock B
c. None of the stocks
d. The investor would exit the market
QUESTION 2If the bidders at a first-price auction have true values of 8, 7, 6, and 5, the item will sell for
a. 8
b. 7
c. just over 8
d. just under 7
QUESTION 3A compensating wage differential is
a. the difference between the wage of an individual working in favorable conditions and the wage of an individual working in unfavorable conditions
b. compensation paid to an individual for working in a less desirable environment
c. premium paid to a security holder to compensate him for bearing a higher risk
d. Only A&B
QUESTION 4If the bidders at a first-price auction have true values of 78, 72, 66, and 65, the item will sell for
a. Just above 78
b. just over 72
c. 78
d. 72
QUESTION 5A risk premium is
a. the difference between the earnings of a low risk asset and a high risk asset
b. premium paid to a security holder to compensate him for bearing a higher risk
c. both A&B
d. none of the above
QUESTION 6First-price auctions have all the following properties EXCEPT
a. Highest bid wins
b. Highest bidder pays the second highest bid
c. The item is won by the highest bidder
d. The price is set to the highest bid
QUESTION 7In equilibrium, low risk assets earn a _______return than high risk assets
a. higher
b. lower
c. similar
d. none of the above
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