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RMI 2302 Exam 1 Nyce Verified 2024
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RMI 2302 Exam 1 Nyce Verified 2024
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RMI 2302 Exam 1 Nyce Verified 2024Advantages of Corporations - ANSWER--Most effective for raising money. For example
- stocks (equity financing) and bonds (debt financing)
-Limited liability - Owners/stockholders risk only what they paid for the stock. Personal
assets are not at stake.
-Expand easily due to attracting capital.
-Life independent of owners and officers.
-Long range planning and growth
Average Benefits - ANSWER-the average benefit of undertaking 'n' units of n activity is
the total benefit of the activity divided by 'n'. These should be ignored.
Average Costs - ANSWER-the average cost of undertaking 'n' units of an activity is the
total cost of the activity divided by 'n'. These should be ignored.
Black Scholes Formula - ANSWER-valuing stock options. This attempts to establish the
extent to which measurable or observable external factors might relate to the price of an
option to buy that particular asset.
Business Population - ANSWER-Businesses constitute the second major part of the
private sector.
Certain Equivalent - ANSWER-When you are willing to pay a little bit more to avoid risk.
This only occurs in risk aversion.
Conglomerates - ANSWER-firms that have plants, which produce products in several
industries.
Core Risk - ANSWER-organizational level risk - these are directly associated with what
an organization or business does.
Decision Theory - ANSWER-aka Decision Analysis- this is used to determine optimal
strategies where a decision maker is faced with several different alternatives and an
uncertain or risky, pattern if future events. "How do you make decisions when faced with
risk?"
Durable Goods - ANSWER-Life expectancy of 3 years or more. (12% of spending)
Dynamic Risk - ANSWER-the chances of something happening now and happening
later are different. They change through time.
Expectation Principle - ANSWER-aka Expected Value Principle - multiply the probability
by the outcome, sum them to find the expected payoff, then choose the highest
, Expectation Principle - ANSWER-this principle does not always provide an adequate
and satisfactory basis for decision making because it does not take into account that
people do not always take decisions that will maximize their expected monetary value.
Expected Utility - ANSWER-Individuals use this. Using utility functions reflect if
someone is risk averse and enables us to understand behavior and make decisions.
This explains the benefit and the reservation price. Utility takes into account time and
joy, which wealth does not.
Expected Value - ANSWER-Organizations use this
Outcome x Probability
Financial Risks - ANSWER-savings and investments
Firm - ANSWER-business organization that owns and operates plants. (May be one
plant or many).
Free Rider Problem - ANSWER-when people can receive benefits from a public good
without contributing to its cost.
Functional Distribution of Income - ANSWER-Indicates how the nation's earned income
is apportioned among wages, rents, interests, and profits according to the function
performed by the income receiver.
Fundamental Risk - ANSWER-risks that effect everyone / a large portion of the
population at the same time.
Government's Role in Society - ANSWER-to understand how/why/what type of
decisions government entities make, you need to understand the government's role in
society. It is important to remember that the roles played by governments in other
countries may be vastly different.
Households dispose of their income in the following ways: - ANSWER-1. Personal
Taxes
2. Personal Saving
3. Personal Consumption Expenditures
Industry - ANSWER-groups of firms that produce the same, or similar, products.
Intangible Hazards - ANSWER-attitudes or culture
Laplace Principle - ANSWER-Find the Average, Pick the Highest
Law of Large Numbers - ANSWER-these work well for independent losses that have no
correlation to others. Insurance companies have thousands of independent losses. As
policies increase, total standard deviation increases. This enables insurance companies
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