An Efficient Market for Risk (Such as an Insurance Market)

question 42

Multiple Choice

An efficient market for risk (such as an insurance market) is most likely to exist:

• A)when there is a level playing field, so that all participants have (approximately) the same wealth and the same degree of risk aversion.
• B)when the potential sellers of insurance are risk-averse but the potential purchasers are not.
• C)when there are significant differences between individuals' wealth levels and attitudes toward risk.
• D)in the presence of private information.

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Definitions:

Common Shares Issued

Refers to the number of shares that have been allocated to shareholders as part of a company's capital stock.

Market Price

The current price at which a particular security, commodity, or asset can be bought or sold on the market.

Comprehensive Income

The total change in equity for a reporting period, including all revenues, gains, expenses, and losses.

Net Income

The profit a company has after all expenses, taxes, and costs have been subtracted from total revenue.