Why Is a Large Number of Exposure Units Generally Required

question 17

Multiple Choice

Why is a large number of exposure units generally required before a pure risk is insurable?

• A)It prevents the insurer from losing money.
• B)It eliminates intentional losses.
• C)It minimizes moral hazard.
• D)It enables the insurer to predict losses more accurately.

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Definitions:

Capital Gain

The profit that results from a disposition of a capital asset, such as stock, bond, or real estate, where the sale price exceeds the purchase price.

Arithmetic Average Return

The simple mean of a series of returns over a period of time, calculated by summing the returns and dividing by the number of periods.

Multiyear Period

A span of time that covers more than one year, often used in planning, budgeting, or assessing performance over the long term.

Compound Return

The total amount of money gained or lost on an investment over a specified period, calculated by taking into account the effect of compounding.