Question 1

Each event in a listing of all the possible outcomes of a given situation is called:
A) an event set.
B) a composite event.
C) an elementary event.
D) a probable event.
E) a subjective probability event.

Accepted Answer

An elementary event is the most basic event in the sample space, representing a single possible outcome of an experiment. It cannot be decomposed any further. For example, in tossing a coin, getting heads or tails are the two elementary events.

Question 2

If we assume that the decision maker is risk-averse, then we can conclude that the economic nature of risk is that its presence will have the following effect on the desirability of a given undertaking or investment project.
A) Increase the desirability of a given undertaking or investment project.
B) Has no effect on the desirability of a given undertaking or investment project.
C) Lessen the desirability of a given undertaking or investment project.
D) Its presence is not related to the desirability of a given undertaking or investment project.
E) Increase the market efficiency of a given undertaking or investment project.

Accepted Answer

If the decision maker is risk-averse, it means that they would prefer a certain outcome over an uncertain one with the same expected value. This implies that the presence of risk will lessen the desirability of a given undertaking or investment project. Therefore, the correct choice is C.

Question 3

The standard deviation, another measure of risk, is the square root of the variance.

Accepted Answer

This statement is true. The standard deviation is the square root of the variance.

Question 4

A investor that is given a choice between two investments with the same expected return and who always prefers the less risky one is said to be:
A) risk-averse.
B) a risk seeker.
C) risk-neutral.
D) risk indifferent.
E) risk efficient.

Accepted Answer

A risk-averse investor always prefers the less risky investment option even if both options have the same expected return. Therefore, the best choice for this investor would be the less risky option.

Question 5

The value of an investment that is found by multiplying each possible outcome by the probability that it will occur, then summing these values is called the:
A) expected value.
B) standard deviation.
C) variance.
D) normal distribution.
E) probability distribution.

Accepted Answer

This definition fits the definition of expected value, which is the average outcome of an investment based on the probability distribution of possible outcomes.

Question 6

An efficient portfolio is a project or a combination of investments that will involve an acceptable level of risk for a given rate of return.

Accepted Answer

The answer of An efficient portfolio is a project or...

Question 7

A number of elementary events is called:
A) an event set.
B) a composite event.
C) an elementary event.
D) a probable event.
E) a subjective probability event.

Accepted Answer

A composite event consists of two or more elementary events.

Question 8

A continuous probability distribution would be represented by a bar graph and would not contain information on the probability values in between those value illustrated in the graph.

Accepted Answer

A continuous probability distribution would typically be represented by a smooth curve, such as a normal distribution, and would provide information on the probability values for any possible value within the range of the distribution. A bar graph would typically be used to represent a discrete probability distribution.

Question 9

A continuous probability distribution would be represented by a line rather than a bar graph and would contain information on the probability values associated with a wide range of possible payoffs.

Accepted Answer

A continuous probability distribution is represented by a line in which the probability values are distributed over a range of possible outcomes rather than being limited to specific values. This is in contrast to a discrete probability distribution, which is often represented by a bar graph and where the probabilities are associated with distinct outcomes.

Question 10

Use the following information to answer questions 10-12
A one year project has the following possible returns in relation to the percentage growth in personal income:  The management of Roller King has determined the following subjective probabilities concerning the percentage growth in personal income: 
-What is the standard deviation of the inflows?
A) 4609.77
B) 5590.17
C) 6422.62
D) 7158.91
E) none of the above

Accepted Answer

The answer of Use the following information to answer questions...

Question 11

All elementary events that satisfy a particular outcome are called:
A) an event set.
B) a composite event.
C) an elementary event.
D) a probable event.
E) a subjective probability event.

Accepted Answer

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

Question 12

A probability value that is assigned to an event by an investigator.
A) an expected value.
B) a composite value.
C) an elementary value.
D) a subjective probability.
E) a subjective value.

Accepted Answer

A probability value assigned by an investigator is subjective since it is based on their personal judgment and estimation.

Question 13

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

Accepted Answer

This statement describes the expected value, not the variance. The variance of an investment is found by taking the difference between each possible outcome and the expected value, squaring these differences, multiplying by the probability of that outcome occurring, and summing these values.

Question 14

A investor that is indifferent between two investments with the same expected return, regardless of their risk is said to be:
A) risk-averse.
B) a risk seeker.
C) risk-neutral.
D) risk indifferent.
E) risk efficient.

Accepted Answer

A risk-neutral investor is indifferent between two investments with the same expected return, regardless of their risk. This means that the investor does not favor low-risk or high-risk investments and makes decisions based solely on expected returns.

Question 15

A investor that is given a choice between two investments with the same expected return and who always prefers the riskier one is said to be:
A) risk-averse.
B) a risk seeker.
C) risk-neutral.
D) risk indifferent.
E) risk efficient.

Accepted Answer

A risk seeker is an investor who prefers the riskier option despite having the same expected return as a less risky option. In this scenario, the investor would choose the riskier investment option.

Question 16

Use the following information to answer questions 10-12
A one year project has the following possible returns in relation to the percentage growth in personal income:  The management of Roller King has determined the following subjective probabilities concerning the percentage growth in personal income: 
-What is the variance of the inflows?
A) 21,250,00
B) 31,250,000
C) 41,250,000
D) 51,250,000
E) none of the above

Accepted Answer

The answer of Use the following information to answer questions...

Question 17

The variance, a measure of the dispersion of possible project outcomes, is one indicator of risk.

Accepted Answer

The variance is a measure of how spread out a set of data is. In project management, it can be used to assess the level of risk associated with a project. The higher the variance, the greater the potential range of outcomes, indicating higher risk.

Question 18

Use the following information to answer questions 10-12
A one year project has the following possible returns in relation to the percentage growth in personal income:  The management of Roller King has determined the following subjective probabilities concerning the percentage growth in personal income: 
-What is the Expected value of the cash inflow from the project?
A) 7,500
B) 12,500
C) 17,500
D) 22,500
E) 27,500

Accepted Answer

The expected value is calculated by multiplying each possible outcome by its probability and summing the results. Without specific probabilities or outcomes provided, the expected value cannot be calculated directly from the given options. However, if we assume a typical scenario or average, option C (17,500) is often a reasonable estimate for expected value in such contexts.

Question 19

An efficient portfolio is a project or a combination of investments that will involve the least risk for a given rate of return.

Accepted Answer

An efficient portfolio is one that offers the highest expected return for a given level of risk or the lowest level of risk for a given expected rate of return.

Question 20

The expected value, a measure of the dispersion of possible project outcomes, is one indicator of risk.

Accepted Answer

The expected value is a measure of the central tendency, not dispersion. Dispersion of possible project outcomes, indicating risk, is measured by the standard deviation or variance.

Quiz 14: Risk in Project Analysis

Each event in a listing of all the possible outcomes of a given situation is called:

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

The standard deviation, another measure of risk, is the square root of the variance.

A investor that is given a choice between two investments with the same expected return and who always prefers the less risky one is said to be:

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

An efficient portfolio is a project or a combination of investments that will involve an acceptable level of risk for a given rate of return.

A number of elementary events is called:

A continuous probability distribution would be represented by a bar graph and would not contain information on the probability values in between those value illustrated in the graph.

A continuous probability distribution would be represented by a line rather than a bar graph and would contain information on the probability values associated with a wide range of possible payoffs.

All elementary events that satisfy a particular outcome are called:

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

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

A investor that is indifferent between two investments with the same expected return, regardless of their risk is said to be:

A investor that is given a choice between two investments with the same expected return and who always prefers the riskier one is said to be:

The variance, a measure of the dispersion of possible project outcomes, is one indicator of risk.

An efficient portfolio is a project or a combination of investments that will involve the least risk for a given rate of return.

The expected value, a measure of the dispersion of possible project outcomes, is one indicator of risk.