Which of the following statements is FALSE?
A) Not all insurable risks have a beta of zero. Some risks, such as hurricanes and earthquakes, create losses of tens of billions of dollars and may be difficult to diversify completely.
B) When a firm buys insurance, it transfers the risk of the loss to an insurance company. The insurance company charges an upfront premium to take on that risk.
C) By its very nature, insurance for nondiversifiable hazards is generally a positive beta asset; the insurance payment to the firm tends to be larger when total losses are low and the market portfolio is high.
D) Because insurance provides cash to the firm to offset losses, it can reduce the firm's need for external capital and thus reduce issuance costs.
Answer: C
You might also like to view...
The symbol ? shows the
A. union of events. B. intersection of two events. C. sum of the probabilities of events. D. sample space.
Which of the following documents would be prepared (by a buyer of goods) after the others?
a. Receiving report b. Check c. Purchase requisition d. Purchase order
A personal withdrawal of cash is recorded in the general journal
Indicate whether the statement is true or false
The break-even point is estimated by
A. multiplying revenue per unit times the quantity sold. B. multiplying fixed costs by contribution per unit. C. dividing variable costs by fixed costs. D. dividing fixed costs by contribution per unit. E. dividing fixed contribution per unit by variable costs.