QUESTIONS FOR REVIEW
1. The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years.
2. What benefit do people get from the market for insurance? What two problems impede the insurance company from working perfectly?
3. What is diversification? Does a stockholder get more diversification going from I to 10 stocks or going from 100 to 120 stocks?
4. Comparing stocks and government bonds, which has more risk? Which pays a higher average return?
5. What factors should a stock analyst think about in determining the value of a share of stock?
6. Describe the efficient markets hypothesis and give a piece of evidence consistent with this hypothesis ..
7. Explain the view of those economists who are skeptical of the efficient markets hypothesis.