If Large Numbers of People Purchase Flood Insurance After a Widely

question 42

Multiple Choice

If large numbers of people purchase flood insurance after a widely reported flood in Sydney, this may be a case:

• A)where people interpret evidence to confirm their pre-existing beliefs
• B)of moral hazard
• C)where people give weight to a small number of vivid observations
• D)where people overestimate their ability

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Definitions:

Projected Benefit Obligation

The present value of all the benefits earned by employees, according to their pension plan up to the measurement date.

Amortization of Prior Service Cost

The process of gradually recognizing the costs of benefits earned by employees in earlier periods in the pension expense over the service life of the employees.

Settlement/Discount Rate

The interest rate used in calculating the present value of future cash flows or the rate at which a financial transaction is settled less than its original value.

Statutory Depletion

A tax deduction method that allows an owner of natural resources to account for the reduction of reserves as a product is produced and sold.