Chapter 4 - Investment-consumption decision model

The separation theorem describes:
1. How managers that are separated from employees make decisions
2. The way in which financial investments by shareholders are converted into physical investments by companies
3. The difference between financial and physical investments made by companies
4. The utility of investors
Which of the following statements is true?
1. The indifference curves of investors determine the level of investment by the company
2. All investors in a company are likely to have the same indifference curves
3. The indifference curves of individuals are likely to influence their investment decisions
4. A risk averse investor is much more likely to borrow money to invest in a company
The slope of the physical investment line represents:
1. The marginal rate of return of projects at any point
2. The number of projects selected
3. The marginal cost of projects
4. The investor's time value of money
The financial investment line shows
1. The trade off made by an individual regarding current and future consumption
2. The number of financial assets owned by individuals
3. The physical assets owned by an individual
4. The financial investments available to a company
Which of the following statements regarding the combining the physical and financial investment lines is not true
1. It helps managers to make decisions that are likely to be in the interests of investors
2. It provides investors with information about optimal investment strategies
3. It helps maximise shareholder utility
4. It enables managers to set their salaries more appropriately
If investors do not know about the separation theorem:
1. They will not be able to make sensible investment decisions
2. They will be unable to maximise their utility
3. It does not matter because managers should make decisions based on this on their behalf
4. They will only invest in particular types of company
It can be assumed that investors are risk averse. This means that
1. They will be unwilling to put their money in risky investments.
2. They will only invest in risky assets where the potential rewards are large enough
3. They will actively seek the safest investments
4. Safe investments will always be more popular than risky ones

Chapter 4 - Investment-consumption decision model

Quiz