Question 1

A risk-averse investor is one that given a choice between two investments with the same expected return would always prefer the less risky one.

Accepted Answer

A risk-averse investor prioritizes avoiding risk and would therefore choose the investment with the lower risk even if it means sacrificing potential higher returns.

Question 2

An elementary event consists of a number of composite events.

Accepted Answer

An elementary event is a simple, indivisible outcome of an experiment, while a composite event is a combination of two or more elementary events. Therefore, a composite event consists of one or more elementary events, and not the other way around.

Question 3

A risk-neutral investor will choose the riskier of two investments with the same expected return, regardless of their risk.

Accepted Answer

A risk-neutral investor does not prefer riskier investments over less risky ones, all else being equal. They focus solely on the expected return of an investment and are indifferent to its level of risk. Therefore, they would choose either investment with the same expected return, regardless of their level of risk.

Question 4

A composite event consists of all elementary events that satisfy a particular outcome.

Accepted Answer

The answer of A composite event consists of all elementary...

Question 5

The expected value of an investment is found by multiplying each possible outcome by the probability that it will occur, then summing these values.

Accepted Answer

This is the definition of expected value in probability and statistics.

Question 6

Each event in a listing of all possible outcomes of a given situation is called an elementary event.

Accepted Answer

This statement is true.

Question 7

In project analysis, the assumption usually made is that the decision maker is risk averse.

Accepted Answer

The assumption of risk aversion is common in project analysis because most decision makers are hesitant to take on too much risk and prefer a more cautious approach.

Question 8

A risk-neutral investor is indifferent between two investments with the same expected return, regardless of their risk.

Accepted Answer

A risk-neutral investor only considers expected return and is not affected by the level of risk. Therefore, they would be indifferent between two investments with the same expected return, regardless of their risk.

Question 9

In probability analysis, the term "event" is used to designate an outcome.

Accepted Answer

The term "event" is commonly used in probability analysis to refer to a set of outcomes, not just a single outcome.

Question 10

In project analysis, the assumption usually made is that the decision maker is a risk seeker.

Accepted Answer

The assumption made in project analysis is that the decision maker is risk averse, meaning they prefer to avoid or minimize risk.

Question 11

An event set consists of all elementary events that satisfy a particular outcome.

Accepted Answer

An event set in probability theory is indeed a collection of all the elementary outcomes that satisfy the conditions of a specific event, representing all the ways in which that event can occur.

Question 12

A risk-return indifference curve shows combinations of increasingly risky investments with decreasing rates of return that are equally attractive to an investor.

Accepted Answer

A risk-return indifference curve shows combinations of investments with varying levels of risk and return, but they are not necessarily equally attractive to an investor. The curve represents the trade-off between risk and return, and an investor may prefer one point on the curve over another depending on their individual preferences and risk tolerance.

Question 13

If we assume that the decision maker is risk-averse, then we can conclude that the economic nature of risk is that its presence increases the desirability of a given undertaking or investment project.

Accepted Answer

If the decision maker is risk-averse, the economic nature of risk is that its presence decreases the desirability of a given undertaking or investment project. Risk-averse individuals prefer to avoid risky investments and prefer to invest in low-risk projects with guaranteed returns.

Question 14

An event's probability can be viewed as the odds that the event will occur or the percentage of times it will take place when a given set of circumstances is repeated many times.

Accepted Answer

This is the definition of probability.

Question 15

If we assume that the decision maker is risk-averse, then we can conclude that the economic nature of risk is that its presence lessens the desirability of a given undertaking or investment project.

Accepted Answer

Risk-aversion is a tendency to prefer a sure thing over a gamble with higher or equal expected value. This means that the presence of risk reduces the attractiveness or desirability of an undertaking or investment project. Therefore, the economic nature of risk is such that it lessens the desirability of a given undertaking or investment project.

Question 16

A subjective probability is a probability value that is assigned to an event by an investigator.

Accepted Answer

A subjective probability is based on personal opinions, judgments, and beliefs and is assigned by an expert or investigator. It is subjective in nature and is not based on empirical evidence or statistical analysis.

Question 17

A composite event consists of a number of elementary events.

Accepted Answer

A composite event is made up of two or more elementary events.

Question 18

Each event in a listing of all possible outcomes of a given situation is called a composite event.

Accepted Answer

A composite event consists of two or more simple events, not each event in a listing of all possible outcomes. Simple events are the most basic possible outcomes.

Question 19

A risk-return indifference curve shows combinations of risk and return that are equally attractive to an investor.

Accepted Answer

This is a correct statement. A risk-return indifference curve is a graphical representation that shows the combinations of risk and return that an investor finds equally attractive. Points on an indifference curve represent portfolios that offer the same expected level of return for a given level of risk. An investor can choose any point on the curve, based on his or her preferences for risk and return.

Question 20

A risk seeker is an investor that given a choice between two investments with the same expected return would always prefer the riskier one.

Accepted Answer

A risk seeker is willing to take on greater risk in the hopes of achieving higher returns. Therefore, they would prefer the riskier investment option, even if both options have the same expected return.

Quiz 14: Risk in Project Analysis