Which of the Following Statements Is FALSE

question 52

Multiple Choice

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 non-diversifiable 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.

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Definitions:

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