​Adverse Selection in Insurance Requires That

question 13

Multiple Choice

​Adverse selection in insurance requires that

• A)​potential customers face different levels of risk
• B)potential customers facing more risk are no more interested in purchasing insurance
• C)people are not risk averse
• D)​insurers can tell higher risk people from lower risk people

---

Definitions:

Authorized Shares

The maximum number of shares that a corporation is legally allowed to issue, as specified in its articles of incorporation.

Outstanding

Refers to something not yet resolved or paid; in finance, it typically relates to shares issued and still in circulation or debts that have not been settled.

Legal Capital

The portion of a company's equity that cannot legally be distributed to shareholders as dividends, usually related to the par value of common and preferred shares.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer, which does not necessarily reflect market value.