A Risk Premium Is

question 9

Multiple Choice

A risk premium is:

• A)a payment to an insurer by a policy-holder who faces a potential loss.
• B)equal to the purchase price of an insurance policy.
• C)the necessary difference between the expected value of a lottery and the payoff of a sure thing to make the decision maker indifferent between the lottery and the sure thing.
• D)the difference between the expected value and the variance of a lottery.

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Definitions:

Bias

A tendency to lean in a certain direction, either in favor of or against a particular thing, person, or group compared with another, often in a way considered to be unfair.

Journalizing

The process of recording a transaction entry into the journal.

Business Transactions

Financial activities or exchanges involving the transfer of value between entities or parties, affecting the financial position of a business.

Journal

A listing of business transactions in chronological order. The journal links on one page the debit and credit parts of transactions. Alternatively known as general journal.