Scenario 17.4 Consider the Following Information

question 77

Multiple Choice

Scenario 17.4
Consider the following information:
StowUrStuff Storage is located slightly below sea level in a coastal town. It could build and maintain a flood control system around its property at an annual cost of $1000, and if it did so, the probability of a flood's doing $1,000,000 in damage during the year would be .005. With no flood control system, the probability of such a flood would be .01.
-Refer to Scenario 17.4. Moral hazard would be eliminated in this situation if:

• A) the insurer would always charge $5000.
• B) the insurer would always charge $10,000.
• C) the insurer could costlessly monitor whether a flood control system is in place, and adjust the premium upward if it is not.
• D) the insurer could costlessly monitor whether a flood control system is in place, and adjust the premium downward if it is not.
• E) the flood did not occur.

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Definitions:

Service Charge

A fee collected for services provided, often added to bills in restaurants, hotels, or banking services.

Reconciled Balance

The balance of an account after accounting discrepancies have been resolved and all entries have been made.

Bank Statement

A document or record provided by a bank, detailing all transactions in an account over a specific period.

Checkbook Balance

The amount of money available in an account, tracking all deposits and withdrawals recorded in the checkbook register.