A Bank Is Considering Adding Life Insurance Underwriting to the Services

question 60

Multiple Choice

A bank is considering adding life insurance underwriting to the services it offers.It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively.It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively.The correlation between these services has been estimated to be +0.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services.What is the expected standard deviation of the new combination of services?

• A)6.40 percent
• B)12.60 percent
• C)5.59 percent
• D)9.08 percent
• E)None of the options is correct.

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Definitions:

Clever Hans Effect

The phenomenon where individuals subconsciously influence the outcome of a study due to their expectations.

Double-blind Study

A research method in which neither the participants nor the experimenters know who is receiving a particular treatment, thereby eliminating bias.

Control Group

A control group is a group in an experiment or study that does not receive the experimental treatment and is used as a benchmark to measure the effects of the treatment.

Blind Observer

An individual who assesses experimental data without knowledge of the test subjects' conditions to prevent bias in research findings.