The "Broken Window Fallacy

question 23

Multiple Choice

The "broken window fallacy"

• A)explains why inflation is so high.
• B)is a justification for the government to print more money.
• C)is illustrated when a government program is justified not on its merits but on the number of jobs it will create.
• D)has nothing to do with public policy.

Differentiate between total risk and systematic risk.

Grasp the principles behind the Capital Asset Pricing Model (CAPM).

Define and calculate portfolio beta and its significance in diversification.

Identify diversifiable (unsystematic) and non-diversifiable (systematic) risks.

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Definitions:

Compound Interest

Compound interest is the addition of interest to the principal sum of a loan or deposit, where interest in the next period is then earned on the principal sum plus previously accumulated interest.

Reinvested

Refers to plowing back earnings or investment returns into purchasing more securities or assets to compound growth.

Initial Investment

The sum of funds allocated for initiating a project, acquiring an asset, or investing in a financial product.

Future Value

The estimated value of an investment at a specified future date, considering factors like interest rates and compounding.