In Reality,market Imperfections Exist That Can Raise the Cost of Insurance

question 5

Multiple Choice

In reality,market imperfections exist that can raise the cost of insurance above the actuarially fair price and offset some of these benefits.These insurance market imperfections include all of the following EXCEPT:

• A)adverse selection.
• B)agency costs.
• C)administrative and overhead costs.
• D)taxation of insurance payments.

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Definitions:

Market Irrationality

Occurrences when financial markets make movements that are inconsistent with the underlying economic fundamentals, sometimes leading to asset price bubbles or crashes.

Rational Risk Premia

The additional return required by investors for taking on additional risk in a rational and calculated manner.

Proprietary Wealth

Wealth that is owned and controlled by an individual or a company, often in the context of investments or intellectual property.

Market Rate of Return

The average rate of return expected by investors from a market or security index over a specific time period.