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| 1 | |
A business that is jointly owned by two or more individuals is known as a: |
| | A) | proprietorship. |
| | B) | partnership. |
| | C) | company. |
| | D) | joint venture. |
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| 2 | |
Dividends are payments that are made by: |
| | A) | partnerships from sales revenues. |
| | B) | companies from sales revenues. |
| | C) | companies from after-tax profits. |
| | D) | partnerships from after-tax profits. |
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| 3 | |
Economists believe that the objective of a firm is to: |
| | A) | maximize profits. |
| | B) | be the largest firm in their industry. |
| | C) | create as much employment as possible. |
| | D) | maximize revenues. |
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| 4 | |
Which of the following is an example of a principal-agent relationship? |
| | A) | Management-employee. |
| | B) | Shareholder-management. |
| | C) | Professor-student. |
| | D) | Employee-customer. |
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| 5 | |
A risk-averse individual will: |
| | A) | never gamble. |
| | B) | only play the Lotto 6/49 when the jackpot is greater than $30 million. |
| | C) | always gamble fairly. |
| | D) | always refuse a fair gamble. |
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| 6 | |
Which of the following would be expected of a risk-averse individual? |
| | A) | purchasing fairly priced insurance. |
| | B) | purchasing lottery tickets. |
| | C) | betting on the Grey Cup game. |
| | D) | playing roulette at the local casino. |
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| 7 | |
An individual with diminishing marginal utility will be: |
| | A) | risk-neutral. |
| | B) | a risk lover. |
| | C) | risk-averse. |
| | D) | a gambler. |
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| 8 | |
Risk spreading reduces the stake of each participant in an insurance contract. The reason that insurance companies tend to spread the risk of large contracts is: |
| | A) | diminishing marginal product. |
| | B) | diminishing marginal utility. |
| | C) | increasing marginal cost. |
| | D) | increasing average cost. |
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| 9 | |
The real return of investing is: |
| | A) | the sum of dividends and interest payments. |
| | B) | the sum of dividends, capital gains, and inflation. |
| | C) | the sum of dividends and capital gains adjusted for inflation. |
| | D) | the sum of dividends and capital gains. |
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| 10 | |
Capital markets: |
| | A) | exist only in Ottawa. |
| | B) | funnel the surplus funds of investors to borrowers. |
| | C) | only exist in developed economies. |
| | D) | is where firms sell capital equipment. |
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| 11 | |
A portfolio of financial assets: |
| | A) | will contain only bonds if the investor is risk-averse. |
| | B) | will contain only stocks if the investor is a risk lover. |
| | C) | is riskier than buying the shares of only one company. |
| | D) | is designed to reduce the risk from investing. |
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| 12 | |
Which of the following combinations illustrates a diversified portfolio? |
| | A) | Canadian Tire, Hudson’s Bay Company, and Wal-Mart. |
| | B) | Royal Bank, TD Canada Trust, and the Bank of Montreal. |
| | C) | WestJet, PetroCan, and Canadian Tire. |
| | D) | WestJet, Air Canada, and Continental Airlines. |
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| 13 | |
In which of the following scenarios will a very risk-averse individual switch from a safe asset to a risky asset? |
| | A) | The return on the risky asset rises. |
| | B) | The volatility of the risky asset increases. |
| | C) | The investor becomes more risk-averse. |
| | D) | The return on the safe asset rises. |
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| 14 | |
A risk-averse investor can reduce variability without reducing his average return from investing by: |
| | A) | only buying low-risk assets. |
| | B) | diversifying with unrelated assets. |
| | C) | buying a portfolio of bonds. |
| | D) | holding most of his assets in cash. |
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| 15 | |
A risk-averse investor will likely hold some bonds or treasury bills in her portfolio: |
| | A) | because they are typically unrelated to stocks and thus reduce risk. |
| | B) | because their prices don’t fluctuate. |
| | C) | because interest income is taxed differently than dividends. |
| | D) | because bonds are safer than stocks. |
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