Which of the Following Statements Is FALSE

question 52

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:

Financial Statements

Official records that detail the financial activities and condition of a business, organization, or individual, typically including balance sheet, income statement, and statement of cash flows.

Retained Earnings

The portion of a company's profits kept in the business after dividends are paid to shareholders, used for reinvestment or to pay off debt.

Non-controlling Interest

An ownership interest in a corporation where the percentage of shares owned does not give the shareholder the control of the company.

Debit Entry

An accounting entry that increases an asset or expense account, or decreases a liability or equity account.