Insurance Is Possible and Can Be Profitable Because of

question 136

Multiple Choice

Insurance is possible and can be profitable because of

• A) private information.
• B) adverse selection.
• C) moral hazard.
• D) risk aversion.

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Definitions:

Inflation Rate

The percentage increase in the general level of prices for goods and services in an economy over a period of time.

NPV

Net Present Value; a financial calculation used to determine the value of a series of future cash flows by discounting them to the present using a specific rate.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Risk-Free Rate

The rate of return of an investment with zero risk, serving as a benchmark for evaluating other investments.