Which of the Following Is Adverse Selection

question 9

Multiple Choice

Which of the following is adverse selection?

• A)the risk associated with selecting stocks in only a few specific companies
• B)the risk that a person will become overconfident in his ability to select stocks
• C)a high-risk person being more likely to apply for insurance
• D)after obtaining insurance a person having less incentive to be careful

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Definitions:

Extraneous Risk

External risk beyond the control of investors or the company, not directly related to the investment's or company's specific activities.

General Market Exposure

The extent to which an investment or portfolio is subject to fluctuations in the overall market.

Mortgage-Backed Securities

Investment products that are secured by mortgages, which are pooled together by a governmental, quasi-governmental, or private entity.

Treasury Bonds

Long-term, interest-bearing securities issued by the government that are considered a safe investment.