Which of the following statement is incorrect? The expected cost of risk per participant will stay the same through pooling arrangements as the number of participants increases, all other factors equal. A pooling arrangement result in reduced risk (standard deviation) to the participants in the pool when losses are negatively correlated. In the special case where losses are perfectly positively correlated across participants, risk can be virtually eliminated with a very large number of participants in a pooling arrangement. All the answers are correct. Insurance distribution costs may include mailing costs.

Which of the following statement is incorrect? The expected cost of risk per participant will stay the same through pooling arrangements as the number of participants increases, all other factors equal. A pooling arrangement result in reduced risk (standard deviation) to the participants in the pool when losses are negatively correlated. In the special case where losses are perfectly positively correlated across participants, risk can be virtually eliminated with a very large number of participants in a pooling arrangement. All the answers are correct. Insurance distribution costs may include mailing costs.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter13: Emerging Topics In Managerial Accounting

Section: Chapter Questions

Problem 3DQ: Why should the incremental cost of a risk response alternative be considered when deciding how best...

See similar textbooks

Similar questions

The empirical SML is too flat relative to what CAPM predicts. Researchers have focused on which two possible explanations?. I - Leverage aversion II - Lottery preference III - Myopic loss aversion IV - Risk aversion A. I and II B. I and III C. I and IV D. II and III E. II and IV
1. Show (give example) how an individual’s risk aversion can be estimated. 2. Explain why we can not aggregate individuals’ risk aversion measures.
Pls Briefly explain these four. 1. The process of assessing overall risks can be difficult and balancing resources to mitigate between risks with a high probability of occurrence but lower loss versus a risk with a high loss but lower probability of occurrence can often be mishandled. Ideal risk management should minimize spending on manpower or other resources and at the same time minimize the negative effect of risks. 2. DEFAULT RISK - is related to the probability that some or all of the initial investment will not be returned. The degree of default risk is closely related to the financial condition of the company issuing the security and the security's rank in claims on assets in the event of default or bankruptcy. 3. LIQUIDITY RISK - is associated with the uncertainty created by the inability to sell the investment quickly for cash. An investor assumes that an investment can be sold at the expected price when future consumption is planned. As the investor considers the sale of…
A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender does. This inequality of information is called O a. adverse selection. b. moral hazard. C. asymmetric information. O d. noncollateralized risk.
Which of the following statements is true for compensation of risk? a. Higher the risk, lower is the return b. Lower the risk, higher is the return c. Higher the risk, higher is the return d. Higher the risk, zero is the return
If nothing is known about the probabilities of the chance outcomes, what is the recommendeddecision using the optimistic, conservative, and minimax regret approaches?
Do you believe on the principle-higher risk provides higher return? Can we achieve high return with no risk at all? Explain your answer.
What happens to the SML graph when risk aversion increasesor decreases?
Why should the incremental cost of a risk response alternative be considered when deciding how best to respond to an important risk?
If there is uncertainty about monetary outcome and you are concerned about return and risk, then all you need to know are the mean and standard deviation of the possible outcomes. The emtire distribution provides no extra useful information. Do you agree or disagree? Justofy your answer and provide an example to back up your argument.
Explain the difference between systematic and unsystematic risk. Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.
In choosing where to invest, return and risk for an investment must be compared. It is not sufficient to choose an investment based only on return without taking risk into consideration. There are two methods or measures that compare return and risk. State these two methods, the formula for each and the criteria used in evaluating alternative investment of each method.