Which of the Following Statements Is False

question 15

Multiple Choice

Which of the following statements is false?

• A) Not all insurable risks have a beta of zero. Some risks, such as hurricanes and earthquakes, create losses of tens of billions of dollars and may be difficult to diversify completely.
• B) When a firm buys insurance, it transfers the risk of the loss to an insurance company. The insurance company charges an upfront premium to take on that risk.
• C) By its very nature, insurance for non-diversifiable hazards is generally a positive beta asset; the insurance payment to the firm tends to be larger when total losses are low and the market portfolio is high.
• D) Because insurance provides cash to the firm to offset losses, it can reduce the firm's need for external capital and thus reduce issuance costs.

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Definitions:

Valium

A prescription medication used to treat anxiety, alcohol withdrawal, and seizures; known chemically as diazepam.

Xanax

A prescription medication, generically known as alprazolam, commonly used to treat anxiety and panic disorders by acting on the brain and nerves to produce a calming effect.

Mood Stabilizers

Medications used to treat mood disorders by helping to balance emotional highs (mania) and lows (depression).

Valium

A medication, generic name diazepam, used to treat anxiety, alcohol withdrawal, and seizures.