Consider the Following Scenario When Answering the Following Questions

question 128

Multiple Choice

Consider the following scenario when answering the following questions:
In 2000,researchers Brigitte Madrian and Dennis Shea analyzed the 401(k) savings behavior of employees in a large U.S.corporation before and after an interesting change in the company 401(k) plan.
Before the plan change,employees were not automatically enrolled as participants in the company 401(k) plan upon being hired and were required to complete paperwork if they wanted to opt in.After the plan change,new employees were automatically enrolled in the 401(k) plan and were required to complete paperwork if they wanted to opt out.The amount of time and effort required to either opt in or opt out was approximately equal.None of the economic features of the plan changed.
-A finding of no significant difference in 401(k) plan participation after the plan change provides evidence that employee 401(k) participation decisions are made ________,and ________ effects do not exist in the context of 401(k) plan participation.

• A) rationally; rational
• B) irrationally; priming
• C) rationally; framing
• D) irrationally; framing
• E) rationally; fairness

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Definitions:

Hurdle Rate

The minimum rate of return required by management for an investment to be acceptable, used in budgeting and capital allocation decisions.

Internal Rate

This term is too broad without specific context, such as “Internal Rate of Return (IRR).” Assuming IRR, it is a financial metric used to estimate the profitability of potential investments.

Present Value

The today's value of a forthcoming sum of money or cash flow sequence, determined by a specific rate of return.

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period.