1.To minimize the exposure to risk by owning different types of assets is called

A.risk aversion

B.portfolio diversification.

C.portfolio rearrangement.

D.risk neutrality.

2.If the stock market is efficient, then

A.no stockholders can constantly earn excess returns.

B.stockholders are always correct about future stock movements.

C.stockholders never understand the market.

D.stockholders can always earn excess return by speculating on stock prices.

3.The equilibrium risk-return curve for a risk-averse investor is

A.positively sloped.

B.negatively sloped.

C.horizontal.

D.vertical.

4.Economic rent commonly refers to capital that has a

A.vertical supply curve.

B.horizontal demand curve.

C.horizontal supply curve.

D.vertical demand curve.

5.One major aspect of bank regulation is to

A.require banks to make a minimum total amount of loans.

B.require banks to keep a minimum amount of capital.

C.require banks to provide a variety of investment options.

D.fix interest rates on loans and interest rates on saving deposits.

6.In a competitive market, the rental price of capital equals

A.the marginal cost of capital.

B.the average cost of capital.

C.the average revenue product of capital.

D.the marginal revenue product of capital.

7.If the price of a stock is $20, the dividend is $2, and the stock price has risen $1.5 in the past year, the dividend yield is

A.7.5 percent.

B.10 percent.

C.17.5 percent.

D.3.5 percent.

8.The demand for capital is

A.a derived demand because it is financially funded by other markets.

B.a derived demand because it depends on the production of goods

C.a final demand because it is determined by market supply and demand.

D.a final demand because it is unrelated to any other market.

9.When a driver pays less attention to traffic after he has purchased full insurance coverage for his vehicle, his behavior is best known as

A.moral hazard.

B.risk aversion.

C.irrationality.

D.adverse selection.

10.You bought a stock for $100 last year. Today, the price of that stock is $90, and you have received $5 in dividend. As a result, you have

A.a capital gain of 5 percent.

B.a capital gain of 10 percent.

C.a capital loss of 5 percent.

D.a capital loss of 10 percent.

11.A profit-maximizing firm will raise the quantity demanded of capital as long as

A.marginal revenue product is less than the price of capital.

B.marginal revenue product is greater than the price of capital.

C.the price of capital is greater than its output price.

D.the price of capital is less than its output price.

12.The implicit rent of a house is

A.always zero for its owner.

B.the property tax and insurance costs for the house.

C.the interest rate on the mortgage loan on the house plus the amount of depreciation on the house

D.the sum of all expenses that the owners incur for maintaining the house

13.Because of asymmetric information in the market of used vehicles, only "lemons" or vehicles of poor quality are sold. This problem is best known as

A.moral hazard.

B.risk aversion.

C.diversification.

D.adverse selection.

14.Which of the following is a common way for shareholders to prevent moral hazard of managers?

A.Increase the number of managers.

B.Limit the amount of information that managers can receive.

C.Share profits with managers.

D.Pay managers a very high salary.

15.Which of the following investments is least risky?

A.Long-term corporate bonds

B.Small-company stocks

C.Large-company stocks

D.Time deposits