Which of the Following Statements About the Use of a Captive

question 9

Multiple Choice

Which of the following statements about the use of a captive insurance company by a parent firm is true?

• A)The captive may not write outside,non-parent company,business.
• B)Captives are not permitted to use reinsurance,so any business insured by the captive stays with the captive.
• C)The captive may be used to insure loss exposures that the parent firm is finding difficult to insure with private insurers.
• D)Business placed with the captive is always considered retained risk and is never considered transferred risk.

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Definitions:

Risk-Free Interest Rate

The hypothetical yield from an investment assumed to be free of any financial risk, often reflected through government bond yields.

Time To Expiration

The remaining period until the expiration date of a financial instrument, typically an option or futures contract.

Option's Intrinsic Value

The difference between the current price of the underlying asset and the strike price of an option, assuming the option is in-the-money.

Strike Value

The predetermined price at which the holder of an option can buy (call option) or sell (put option) the underlying asset.