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Risk Pooling Can Cut the Variance of Losses While Keeping

question 37

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Risk pooling can cut the variance of losses while keeping the mean intact. Hence, according to the mean-preserving spread proposition, agents will be _____________ with risk pooling than without it.


Definitions:

Intercompany Profit

Profits that arise from transactions between companies within the same corporate group, which could distort the true financial position if not eliminated in consolidated financial statements.

Gross Margin

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.

Consolidated Statement

A financial report that incorporates the assets, liabilities, equity, income, and cash flows of a parent company and its subsidiaries.

Current Liabilities

Short-term financial obligations that are due within one year or within the normal operating cycle.

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