Which of the Following Statements About the Risk Pooling Is

question 5

Multiple Choice

Which of the following statements about the risk pooling is correct?

• A) Risk pooling works best if the number of parties involved is small.
• B) Risk pooling reduces the standard deviation of the loss distribution.
• C) Risk pooling increases the loss probability.
• D) Risk pooling can be used to increase the cost of bearing risk.

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Definitions:

SUTA Tax

State Unemployment Tax Act; a tax that employers are required to pay to the state government to fund unemployment benefits for workers who lose their jobs.

Cumulative Earnings

The total amount of net income earned by a company over its entire existence.

Net Pay

Net pay refers to the amount of money an employee takes home after all deductions, such as taxes and retirement contributions, have been subtracted from their gross salary.

FICA Social Security

A U.S. government program funded by payroll taxes, providing retirement benefits, disability income, and survivor benefits.