Science

21.Moral hazard is the
a.outcome of a Prisoner's Dilemma.
b.result of market signaling.
c.risk associated with a Dutch auction.
d.risk that one party to a contract may alter its post-contract behavior to the detriment of another party.

22.The Prisoner's Dilemma is an example of
a.market signaling.
b.a zero-sum game.
c.a non-zero sum, noncooperative game with a dominant strategy.
d.adverse selection.

23.A proposed project should be accepted if the net present value is
a.positive.
b.negative.
c.larger than the internal rate of return.
d.smaller than the internal rate of return.

24.Other things being equal, the higher the cost of capital,
a.the higher the NPV of a project.
b.the higher the IRR of the project.
c.the lower the NPV of the project.
d.the cost of capital has no effect on the NPV of the project.

25.Two projects have the following NPVs and standard deviations:
Project A Project B
NPV 200 200 200
Standard deviation 75 100

25.Two projects have the following NPVs and standard deviations:

Project A Project B
NPV 200 200 200
Standard deviation 75 100

A person who selects project A over project B is
a.risk seeking.
b.risk indifferent.
c.risk averse.
d.None of the above.

26.A stock whose rate of return fluctuates less than the rate of return of a market portfolio will have a beta that equals
a.1.
b.less than 1.
c.more than 1.
d.Either A or C above.

27.The internal rate of return of a project can be found
a.by discounting all cash flows at the cost of capital.
b.by averaging all cash inflows, and calculating the interest rate, which will make them equal to the average investment.
c.by calculating the