The Expected Value of a Loss Exposure

question 9

Multiple Choice

The Expected Value of a Loss Exposure:

• A) can be used by an insurance company to calculate the insurance premium
• B) can be used by a firm to save enough to cover the expected losses
• C) is an estimate, and not absolute value, of future losses
• D) All of the above are correct.

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Definitions:

Stock Price

The current market price of a company's shares, as bought and sold by investors on stock exchanges.

Cost of Capital

The mandatory rate of gain a business must realize on its investment schemes to maintain its market identity and attract funds.

Return on Equity

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently equity is used to generate profits.

Capital Employed

The total amount of capital used for the acquisition of profits by a firm or project, typically represented by the value of all assets minus current liabilities.