Mel Is Thinking of Going on a Cruise

question 74

Multiple Choice

Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should:

• A)not buy trip insurance.
• B)only buy trip insurance if it costs less than $780.
• C)only buy trip insurance if it costs less than $20.
• D)only buy trip insurance if it costs less than $50.

Explain self-handicapping behaviors and their psychological motivations.

Understand the overjustification effect, its implications on motivation and behavior, and ways to mitigate it.

Analyze the effects of cognitive errors and biases on self-perception and behavior in social contexts.

Define belief perseverance and its impact on attitude and belief systems.

---

Definitions:

IFRS

International Financial Reporting Standards, which are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming the global standard for the preparation of public company financial statements.

Financial Statements

Documents that provide an overview of a company's financial condition, including income statement, balance sheet, and cash flow statement.

ROE

Return on Equity - a financial ratio that measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested.

Debt Ratio

A financial ratio that measures the extent of a company's leverage, calculated by dividing total liabilities by total assets.