Which of the Following Is Not an Advantage to an Insurance

question 159

Multiple Choice

Which of the following is not an advantage to an insurance company of insuring a large group of people for health insurance?

• A)The characteristics of a large group are likely to reflect those of the entire population.
• B)It is easier to accurately predict the number of claims for a group than for an individual.
• C)When all group members pay the premium, the problem of moral hazard is reduced.
• D)When all group members pay the premium, the problem of adverse selection is reduced.

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Definitions:

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project by discounting future cash flows to their present value.

Cost Of Capital

The rate of return a company must earn on its investment to maintain its market value and attract funds. It represents the cost of a company to secure funds, whether through debt or equity.

Capital Component

One of three sources of capital: debt, preferred stock, or equity.

Required By Investors

Refers to the expectations or conditions that investors demand before committing capital to an investment.