Insurance Companies Tend to Have a Stock Market Price at a Discount

question 71

Multiple Choice

Insurance companies tend to have a stock market price at a discount to the average market price (price/earnings ratio) .Which of the following is not a likely reason for this relatively low market value?

• A)Insurance is a highly regulated industry.
• B)The insurance industry has substantial competition.
• C)The accounting environment likely contributes to the relatively low market price for insurance company stocks.
• D)The nature of the industry leads to standards that provide for much judgment and possible manipulation of reported profit.
• E)Insurance companies typically have a high return on common equity.

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Definitions:

Poisson Probability Distribution

A statistical distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space.

Continuous Probability

Describes the likelihood of outcomes in situations where the range of possible values is an interval, allowing for any value within the range.

Discrete Random Variable

A variable that takes on a countable number of distinct values, often representing outcomes of a random process.

Expected Value

This is the mean of a random variable, representing the average outcome we would expect to see if we could repeat an experiment an infinite number of times.