EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 10.5, Problem 2CC
Summary Introduction
To discuss: The circumstances where risk can be diversified in a large portfolio of insurance contracts.
Introduction:
Risk refers to the movement or fluctuation in the value of an investment. The movement can either be positive or negative. A positive fluctuation in the price benefits the investor. The investor will lose money if the price movement in negative.
Diversification refers to the process of investing in multiple investment avenues. The principle of diversification states that the risk or the portfolio reduces to some extent if the investor spreads his or her investment across different assets.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
What are the insurance risk management tools?
what is one example of a risk management strategy used by insurance companies to mitigate underwriting risks?
What are the pro and cons of third-party insurance?
Chapter 10 Solutions
EBK CORPORATE FINANCE
Ch. 10.1 - For an investment horizon from 1926 to 2012, which...Ch. 10.1 - For an investment horizon of just one year, which...Ch. 10.2 - Prob. 1CCCh. 10.2 - Prob. 2CCCh. 10.3 - How do we estimate the average annual return of an...Ch. 10.3 - Prob. 2CCCh. 10.4 - Prob. 1CCCh. 10.4 - Do expected returns of well-diversified large...Ch. 10.4 - Do expected returns for Individual stocks appear...Ch. 10.5 - What is the difference between common risk and...
Ch. 10.5 - Prob. 2CCCh. 10.6 - Explain why the risk premium of diversifiable risk...Ch. 10.6 - Why is the risk premium of a security determined...Ch. 10.7 - What is the market portfolio?Ch. 10.7 - Define the beta of a security.Ch. 10.8 - Prob. 1CCCh. 10.8 - Prob. 2CCCh. 10 - The figure on page informalfigure shows the...Ch. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - The last four years of returns for a stock are as...Ch. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - How does the relationship between the average...Ch. 10 - Consider two local banks. Bank A has 100 loans...Ch. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - Consider an economy with two types of firms, S and...Ch. 10 - Prob. 24PCh. 10 - Explain why the risk premium of a stock does not...Ch. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - What is an efficient portfolio?Ch. 10 - What does the beta of a stock measure?Ch. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 33PCh. 10 - Suppose the risk-free interest rate is 4%. a. i....Ch. 10 - Prob. 35PCh. 10 - Prob. 36PCh. 10 - Suppose the market risk premium is 6.5% and the...Ch. 10 - Prob. 38P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- An implied condition of pooling risks with insurance is that the event being insured against is under the control of the individuals. TRUE or FALSE Strictly speaking, the price of insurance is the pure or actuarily fair premium TRUE or FALSEarrow_forwardidentify the assumptions underlying the interest coverage ratio appropriate measure for analyzing long-term solvency risk? Alternatively, can you identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing short-term solvency risk?arrow_forwardWhen are losses in noncurrent security investments recognized?arrow_forward
- Which of the following is a type of captive formed to write most types of liability insurance coverage? A. Risk orientation groups B. Risk reduction groups C. Risk retention groups D. Risk avoidance groupsarrow_forwardwhat is the Difference between derivatives and insurance contractarrow_forwardWhat is participating in insurer management? What is treaty reinsurance? What is facultative reinsurance?arrow_forward
- describing how the element of "risk" factors into the concept of insurance. cite a specific type of insurance policy and indicate how risk will play into the issuance of the insurance policy.arrow_forwardWhat are Contingent Liabilities? Give an example. What are the factors that determine the reason for Contingent Liabilities?arrow_forwardExplain Risk Premiums, Interest Rate Risk, and Default Risk?arrow_forward
- What is the relation between the expected rate of return and the required rate of return as they pertain to the fair market price and the current market price of a security?arrow_forwardWhat is the fair value option? Briefly describe the controversyof applying the fair value option to financial liabilities.arrow_forwardPlease answer fastarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage LearningIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Investment Risk and Its Types; Author: EconClips;https://www.youtube.com/watch?v=qDZw_iKzJlI;License: Standard Youtube License