Deck 11: Time and Uncertainty

Question 1

The interest rate:

A)is expressed as a percentage per dollar borrowed and per unit of time.
B)tells us how much less money is worth today than in the future.
C)exists only because lending is risky.
D)All of these are true.

Answer 1

is expressed as a percentage per dollar borrowed and per unit of time.

Question 2

What is the amount of interest owed on a loan of $40,000 after a year at an interest rate of 4 percent?

A)$1,600
B)$41,600
C)$40,400
D)$160

Answer 2

$1,600

Question 3

The decision to buy a $100 _______ is complicated by the value of money changing over time.

A)concert ticket
B)stock
C)sweater
D)blender

Answer 3

stock

Question 4

A deposit of $500 after a year at 3 percent interest has a value of:

A)$509.
B)$515.
C)$565.
D)$1,500.

Question 5

What is the amount of interest owed on a loan of $2,000 after a year at an interest rate of 10 percent?

A)$2,100
B)$2,200
C)$200
D)$100

Question 6

Rational people prefer to experience immediate benefits and delayed costs because:

A)a fixed amount of money is worth less to us now than in the future.
B)a fixed amount of money is worth more to us now than in the future.
C)the value of a fixed amount of money does not change over time.
D)rational people have insatiable wants.

Question 7

What is the total amount owed on a loan of $2,000 after a year at 2 percent interest?

A)$4,000
B)$2,020
C)$2,040
D)$2,400

Question 8

A deposit of $50,000 after a year at 2 percent interest is valued at:

A)$1,000.
B)$52,000.
C)$49,000.
D)$51,000.

Question 9

What is the amount of interest owed on a loan of $75,000 after a year at an interest rate of 1 percent?

A)$7,500
B)$75,750
C)$82,500
D)$750

Question 10

One can think of interest as:

A)the cost of inflation.
B)the price of borrowing per dollar.
C)the time it takes a bond to mature.
D)All of these are true.

Question 11

What is the amount of interest owed on a loan of $100,000 after a year at an interest rate of 3 percent?

A)$3,000
B)$30,000
C)$103,000
D)$100,300

Question 12

The interest rate you typically earn on a deposit at a bank:

A)represents the price of your loan.
B)represents the risk of investing.
C)is the opportunity cost to you of lending money.
D)is the opportunity cost to a bank of lending money.

Question 13

What is the total amount owed on a loan of $100,000 after a year at 5 percent interest?

A)$5,000
B)$95,000
C)$105,000
D)$500,000

Question 14

Different banks:

A)may offer loans at different rates.
B)all offer loans at the same interest rate.
C)are mandated to follow the interest rate set by the Fed.
D)never offer loans at exactly the same rates.

Question 15

Benefits today cannot be directly compared with costs in the future because:

A)money today is worth more than money in the future.
B)people do not have perfect willpower and will waste money today.
C)investments aren't always profitable.
D)more information is needed to make investment decisions than is typically available.

Question 16

Compounding is the process of:

A)additional interest being paid on interest that has already been earned.
B)adding the percentage of interest times your initial principal yearly.
C)deposits steadily increasing a set amount annually.
D)None of these are true.

Question 17

The value of $100 changes over time because:

A)there is an opportunity cost of waiting for money in the future.
B)people prefer to save money rather than spend it immediately.
C)the government collects taxes.
D)None of these are true.

Question 18

In order to compare benefits today with future costs, we need to know:

A)the interest rate.
B)the rate of inflation.
C)the uncertainty associated with future benefits and costs.
D)All of these are true.

Question 19

The value of a deposit amount X with interest r after one period equals:

A)(X ×1)/(X × r)
B)X × (1 + r)
C)X/(1 + r)
D)All of these are true.

Question 20

When deciding whether to deposit money in a bank:

A)everyone will respond exactly the same to any given interest rate.
B)some people will require a higher interest rate to deposit the same amount of money as others.
C)people don't accurately account for the risk of losing savings.
D)most people will deposit a specific amount of money regardless of the interest rate.

Question 21

If you knew that an investment was going to pay you $46,370 in 5 years, and you knew that the annual interest rate over that time would be 3 percent, you could calculate the present value to be:

A)$39,999.
B)$37,000.
C)$41,998.
D)$41,600.

Question 22

If you knew that an investment was going to pay you $215,892.50 in 10 years, and you knew that the annual interest rate over that time would be 8 percent, you could calculate the present value to be:

A)$80,000.
B)$100,000.
C)$150,000.
D)$125,000.

Question 23

Which of the following is closest to the future value of a $100 deposit earning 5 percent interest annually after 5 years?

A)$125
B)$128
C)$1,268
D)$105

Question 24

To compute the present value of a future amount, you must know the _______ and the _______.

A)interest rate; compounding interest
B)interest rate; time period
C)compounding interest; time period
D)None of these are true.

Question 25

The future value of a deposit is _______, where r = interest rate, n = periods, and PV = present value.

A)PV × (1 + r)× n
B)PV × (1 + r)n
C)PV × (r)n
D)PV / (1 + r)n

Question 26

Which of the following statements about risk is true?

A)Risk occurs when the costs or benefits of an event or choice are uncertain.
B)It explains why the changing value of money is such a challenge.
C)Risk should always be avoided, at any cost.
D)None of these statements are true.

Question 27

Which of the following is closest to the future value of an $800,000 deposit earning 2 percent interest annually after 20 years?

A)$1,120,262
B)$1,188,758
C)$1,201,204
D)$1,176,224

Question 28

The process of accumulation that occurs when interest is paid on previously earned interest is called:

A)present valuation.
B)backdating.
C)compounding.
D)front loading.

Question 29

Present value:

A)is always greater than the future value of money.
B)does not account for inflation.
C)is how much an amount of money obtained in the future is worth today.
D)All of these are true.

Question 30

Which of the following is closest to the future value of a $4,000 deposit earning 2 percent interest annually after 10 years?

A)$4,122
B)$4,876
C)$5,025
D)$4,805

Question 31

Present value is how much a certain amount of money:

A)that will be obtained in the future is worth today.
B)that you currently have will be worth in the future.
C)that is earning interest will be worth when you withdraw it.
D)needs to be discounted to be meaningful.

Question 32

If you knew that an investment was going to pay you $1,188,757 in 20 years, and you knew that the annual interest rate over that time would be 2 percent, you could calculate the present value to be:

A)$1,000,000.
B)$1,500,000.
C)$905,000.
D)$800,000.

Question 33

Knowing how to translate between present and future value can be useful when:

A)the benefits and costs occur at different times.
B)the benefits and costs occur at the same time.
C)the present costs are higher than the present benefits.
D)there are no benefits and costs.

Question 34

The present value of $250,000 received in 10 years at 2 percent interest is approximately:

A)$205,087.
B)$212,051.
C)$305,194.
D)$195,085.

Question 35

Compounding is:

A)beneficial to savers, but costly to borrowers.
B)beneficial to borrowers, but costly to savers.
C)beneficial to borrowers and savers alike.
D)costly to both borrowers and savers.

Question 36

If you knew that an investment was going to pay you $128 in 5 years, and you knew that the annual interest rate over that time would be 5 percent, you could calculate the present value to be:

A)$95.
B)$90.
C)$105.
D)None are correct.

Question 37

The present value of $500,000 received in 4 years at 7 percent interest is approximately:

A)$381,448.
B)$655,398.
C)$344,682.
D)None of these are true.

Question 38

Which of the following is closest to the future value of a $40,000 deposit earning 3 percent interest annually after 5 years?

A)$41,282
B)$46,021
C)$46,371
D)$41,150

Question 39

If you want to own $1 million when you retire in 45 years, and you can only make one deposit, how much should you put into your retirement fund now given the interest rate is 3 percent?

A)$250,005
B)$436,770
C)$264,439
D)$275,389

Question 40

The present value of $300,000 received in 12 years at 4 percent interest is approximately:

A)$312,451.
B)$187,379.
C)$427,126.
D)None of these are true.

Question 41

What is expected value?

A)The average of each possible outcome of a future event, weighted by its probability of occurring
B)The average probability of all possible outcomes of a future event occurring, weighted by each possible outcome individually
C)The sum of all probabilities of all possible outcomes of a future event occurring
D)The most likely future outcome

Question 42

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.If Kate decides to play the second game, what is the probability that she will pull out a green marble?

A)10 percent
B)40 percent
C)50 percent
D)75 percent

Question 43

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.What should John do?

A)Expand, because he expects to earn $320,000 in revenue by expanding and it will only cost him $150,000 to do so.
B)Not expand, because there is a chance he can earn the same amount not expanding without making the $150,000 investment.
C)Not expand, because he expects to earn only $120,000 more revenue by expanding than not, and it will cost him $150,000 to expand.
D)Expand, because he has a 70 percent chance of earning more revenue by expanding than what it will cost to do so.

Question 44

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.If Kate only cares about the expected value of the outcome and does not care about risk, she should:

A)not play the first game, because she never wins anything.
B)play the first game only if the cost of playing is greater than the expected value of the payoff.
C)compare the cost of playing the first game with the value of her time.
D)play the first game only if the cost of playing is less than the expected value of the payoff.

Question 45

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.If Kate only cares about the expected value of the outcome, and does not care about risk, she should:

A)not play the second game because she never wins anything.
B)play the second game because she will always win some amount of money.
C)not play the second game because the cost of playing the game is greater than the expected value of the payoff.
D)play the second game because the cost of playing the game is less than the expected value of the payoff.

Question 46

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.The probability of drawing a red marble is:

A)10 percent in both games.
B)10 percent in the first game and 25 percent in the second game.
C)25 percent in the first game and 10 percent in the second game.
D)25 percent in both games.

Question 47

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.What is the expected value of John's revenue if he chooses to expand?

A)$320,000
B)$230,000
C)$900,000
D)$140,000

Question 48

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.Jack decides to play the first game and Kate decides to play the second game. The expected value of the payoff:

A)is higher for Jack than for Kate.
B)is lower for Jack than for Kate.
C)is the same for both Jack and Kate, because there's only one red marble.
D)is higher for Kate because there is a greater chance of being reimbursed for the cost of the game.

Question 49

Evaluating risk requires us to:

A)think about different possible outcomes.
B)accept that our best guess about future costs and benefits could be wrong.
C)consider uncertain costs or benefits of an event or choice.
D)All of these are true.

Question 50

Calculating expected value involves:

A)estimating how likely different outcomes are and what the financial implications of each outcome might be.
B)predicting the most likely outcome and planning for the event to occur.
C)assuming the worst outcome will occur and evaluating the financial implication of that outcome.
D)None of these are true.

Question 51

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.If Jack cares only about expected value, and does not mind risk, he should decide to play the game in which the expected value of the payoff is:

A)higher than the price to play the game.
B)lower than the price to play the game.
C)higher than the expected value of the payoff in the other game.
D)double the price to play the game.

Question 52

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.Jack will play a game if the expected payoff is higher than the cost of playing. Comparing the expected value of the payoff of each game to the price of $5 to play, we can conclude that Jack should:

A)play the second game, but not the first.
B)play neither game.
C)play the first game, but not the second.
D)play both games.

Question 53

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.If John decides to expand based on expected value, it means that:

A)the difference in expected revenue from expanding versus not expanding must be greater than $150,000.
B)the expected revenue from not expanding must be less than $150,000.
C)the difference in expected revenue from expanding versus not expanding must be less than $150,000.
D)the expected revenue from expanding must be greater than $150,000.

Question 54

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.What is the expected value of the payoff in the first game?

A)$5.75
B)$5.00
C)$4.75
D)$4.50

Question 55

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.The expected value of the payoff is _______ for the first game and _______ for the second game.

A)$5.00; $4.50
B)$5.75; $4.50
C)$4.50; $5.75
D)$5.75; $5.25

Question 56

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.What is the probability of drawing a blue marble in the first game?

A)25 percent
B)20 percent
C)50 percent
D)75 percent

Question 57

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.If Kate decides to play the second game, what is the expected value of her payoff?

A)$5.00
B)$5.75
C)$4.50
D)$4.00

Question 58

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.What is the expected value of John's revenue if he chooses not to expand?

A)$400,000
B)$200,000
C)$250,000
D)$225,000

Question 59

Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, $20 is won, and if it is blue, $1 is won. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; $20 is won if it is red, $5 is won if it is blue, and $1 is won if it is green. Both games cost $5 to play.If Jack only cares about the expected value of the outcome and does not care about risk, he should _______ the first game because it costs _______ and the expected payoff is _______.

A)not play; $5; $5.75
B)play; $5; $5.75
C)play; $5.75; $5
D)not play; $5.75; $5

Question 60

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.To make the best decision, John should compare:

A)the expected value of his revenue if he doesn't expand with the expected value of his revenue if he does expand.
B)the difference in expected revenue if he does or does not expand to the cost of expansion.
C)the expected value of his revenue if he expands to the cost of expansion.
D)None of these are true.

Question 61

Economists assume that, in general, when individuals are faced with two choices that have the same expected value, they will prefer the choice with:

A)lower risk.
B)higher risk.
C)the higher opportunity cost.
D)the lower future value.

Question 62

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.John decides to expand. Which of the following is true?

A)John's expected revenue is $50,000 less than it would have been if he didn't expand.
B)John will earn $120,000 more revenue, but this amount is less than the cost of expansion.
C)John will earn $120,000 more revenue and therefore made the most profitable decision.
D)All of these statements are true.

Question 63

When thinking about investing money in _______, one must consider the trade-off between risk and expected value.

A)stocks
B)retirement funds
C)bonds
D)All of these are true.

Question 64

Bailey owns a farm, and her annual crop is dependent on the weather. If it has been an exceptionally rainy year, she can expect to earn $70,000. If it has been a very dry year, she will earn $20,000. If the weather is moderate, she will earn $50,000. There is a 20 percent chance that it will be a very rainy year; a 30 percent chance that it will be a very dry year; and a 50 percent chance that the weather will be moderate. What is the expected value of Bailey's earnings?

A)$50,000
B)$25,000
C)$45,000
D)$60,000

Question 65

Individuals who are thinking about investing money in stocks, bonds, or real estate must consider:

A)the trade-off between future value and expected value.
B)the opportunity cost of the risk involved.
C)the trade-off between risk and expected value.
D)the opportunity cost of the expected value.

Question 66

How does an insurance policy help mitigate risk?

A)Individuals pay to reduce uncertainty in some aspect of their lives.
B)Individuals are paid very large sums of money if they encounter any risk.
C)Individuals pay money to ensure they don't experience any risk.
D)Individuals pay a fee in exchange for the insurance company covering all expenses associated with risky behavior.

Question 67

When people are considered risk averse, they:

A)generally have a low willingness to take on risk.
B)generally have a high willingness to take on risk.
C)will only participate in low-risk activities.
D)will never accept risk in any situation.

Question 68

People who have a high willingness to take on situations with risk are considered to be:

A)risk-averse.
B)risk-seeking.
C)low-risk.
D)high-compensation.

Question 69

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.John should expect that the value of his revenue will be ________ if he expands and ________ if he does not expand.

A)$320,000; $200,000
B)$170,000; $50,000
C)$120,000; $200,000
D)−$30,000; $200,000

Question 70

People who exhibit risk-seeking behavior:

A)have a high willingness to take on situations with risk.
B)have a low willingness to take on situations with risk.
C)will only participate in high-risk situations.
D)will always choose the riskier venture when given two choices.

Question 71

Someone who is risk-averse is likely to:

A)buy a government bond instead of a stock.
B)invest in a start-up company instead of putting money under the mattress.
C)buy company stock instead of putting money in a savings account.
D)All of these are true.

Question 72

A risk-seeker is likely to:

A)buy a government bond instead of a stock.
B)put money in a savings account instead of investing in a start-up company.
C)invest in a start-up company instead of putting money under the mattress.
D)put money under the mattress instead of buying company stock.

Question 73

Risk aversion:

A)is the same for everyone.
B)is an unusual type of preference.
C)is an aspect of an individual's preferences.
D)All of these are true.

Question 74

Economists have observed that people are:

A)generally risk-seeking.
B)generally risk-averse.
C)always risk-averse.
D)always risk-seeking.

Question 75

Economists have observed that individuals have _______ tastes for taking on financial risks and are _______ in general.

A)varying; risk-averse
B)the same; risk-averse
C)varying; risk-seeking
D)the same; risk-seeking

Question 76

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.What is the difference in expected earnings if John chooses to expand versus not expand?

A)$320,000
B)$200,000
C)$150,000
D)$120,000

Question 77

Those who generally have a low willingness to take on risk are said to be:

A)risk-seekers.
B)risk-averse.
C)low-risk players.
D)high-compensation players.

Question 78

Risk-seeking behavior:

A)is irrational.
B)is an aspect of an individual's preferences.
C)is the same for everyone.
D)All of these are true.

Question 79

Shayla is thinking about leaving her place of work and starting her own business. If she stays with her company, there is an 80 percent chance that she will remain in her current role earning $50,000 per year and a 20 percent chance that she will receive a promotion and earn $60,000 per year. If she starts her own business, there is a 40 percent chance she'll earn $80,000 per year; a 10 percent chance she'll earn $100,000 per year; and a 50 percent chance she'll earn $20,000 per year. Which of the following statements is true?

A)Shayla's expected earnings are $2,000 more if she stays with her current company.
B)If Shayla is risk neutral, she will be indifferent between staying with her current company and starting her own business.
C)Shayla's expected earnings are $55,000 per year if she stays with her current company.
D)None of these statements are true.

Question 80

Julia is thinking about leaving her place of work and starting her own business. If she stays with her company, there is an 85 percent chance that she will remain in her current role earning $40,000 per year and a 15 percent chance that she will receive a promotion and earn $50,000 per year. If she starts her own business, there is a 30 percent chance she'll earn $60,000 per year; a 20 percent chance she'll earn $80,000 per year; and a 50 percent chance she'll earn $20,000 per year. Which of the following statements is true?If Julia is risk averse, she will definitely prefer to stay with her current company.If Julia is risk neutral, she will definitely prefer to start her own business.The expected value of Julia's earnings is $44,000 if she starts her own business.

A)I and III only
B)II and III only
C)I and II only
D)I, II, and III