Question 1

The certainty equivalent for risk-averse people who buy insurance is the

Accepted Answer

A) maximum loss they may sustain. 
B) expected loss they may sustain. 
C) insurance premium they pay. 
D) profit the insurance company earns. 
A) maximum loss they may sustain. 
B) expected loss they may sustain. 
C) insurance premium they pay. 
D) profit the insurance company earns.

Question 2

What insurance protects against liability for harm the insured may cause to others as a result of product failure or accidents?

Accepted Answer

A) property insurance 
B) health insurance 
C) life insurance 
D) casualty insurance 
A) property insurance 
B) health insurance 
C) life insurance 
D) casualty insurance

Question 3

Which of the following do not help people during their retirement?

Accepted Answer

A) term life insurance 
B) annuity 
C) whole life insurance 
D) universal life insurance 
A) term life insurance 
B) annuity 
C) whole life insurance 
D) universal life insurance

Question 4

Which of the following statements regarding the funding of Social Security is false?

Accepted Answer

A) In 2004, workers contributed 6.2% of their wages up to a maximum of $87,900. 
B) Employers contribute an amount equal to the workers' contributions. 
C) Interest, dividend, rent, and royalty income are also taxed to provide supplemental funds for Social Security. 
D) Contributions exceeding the amounts paid to current Social Security recipients are invested in Treasury bonds to build up a Social Security trust fund. 
A) In 2004, workers contributed 6.2% of their wages up to a maximum of $87,900. 
B) Employers contribute an amount equal to the workers' contributions. 
C) Interest, dividend, rent, and royalty income are also taxed to provide supplemental funds for Social Security. 
D) Contributions exceeding the amounts paid to current Social Security recipients are invested in Treasury bonds to build up a Social Security trust fund.

Question 5

Which of the following is true of life insurance companies?

Accepted Answer

A) They primarily hold long-term assets that are not particularly liquid. 
B) They primarily hold short-term liquid assets. 
C) Payouts to policyholders are relatively predictable. 
D) Both A and C of the above are true. 
A) They primarily hold long-term assets that are not particularly liquid. 
B) They primarily hold short-term liquid assets. 
C) Payouts to policyholders are relatively predictable. 
D) Both A and C of the above are true.

Question 6

Which of the following pensions does not promise employees a specific retirement benefit?

Accepted Answer

A) defined-benefit plan 
B) defined-contribution plan 
C) overfunded plan 
D) underfunded plan 
A) defined-benefit plan 
B) defined-contribution plan 
C) overfunded plan 
D) underfunded plan

Question 7

A term life insurance policy provides

Accepted Answer

A) insurance benefits only. 
B) savings benefits only. 
C) both insurance and savings benefits. 
D) none of the above. 
A) insurance benefits only. 
B) savings benefits only. 
C) both insurance and savings benefits. 
D) none of the above.

Question 8

A company's pension plan promises employees a specific amount of income when they retire. However, the plan does not have the assets to meet these future obligations to employees. This plan represents a defined-________ plan that is ________.

Accepted Answer

A) benefit; underfunded 
B) benefit; overfunded 
C) contribution; underfunded 
D) contribution; overfunded 
A) benefit; underfunded 
B) benefit; overfunded 
C) contribution; underfunded 
D) contribution; overfunded

Question 9

Describe how insurance companies try to reduce adverse selection and moral hazards.

Accepted Answer

Insurance companies use various strategi

Question 10

If automobile insurance companies were prevented from charging risk-based premiums, but could selectively screen potential policyholders, the likely effect would be to

Accepted Answer

A) increase the number of young men obtaining insurance coverage relative to young women. 
B) decrease the number of young women obtaining insurance coverage relative to young men. 
C) decrease the number of young men obtaining insurance coverage relative to young women. 
D) do both A and B of the above. 
A) increase the number of young men obtaining insurance coverage relative to young women. 
B) decrease the number of young women obtaining insurance coverage relative to young men. 
C) decrease the number of young men obtaining insurance coverage relative to young women. 
D) do both A and B of the above.

Question 11

Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of ________.

Accepted Answer

A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases 
A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases

Question 12

(I)A majority of life insurance companies are organized as mutual companies. (II)State governments have the major responsibility for regulating insurance companies.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 13

Of the following financial intermediaries, which holds the least liquid assets?

Accepted Answer

A) property and casualty insurance companies 
B) life insurance companies 
C) money market mutual funds 
D) commercial banks 
A) property and casualty insurance companies 
B) life insurance companies 
C) money market mutual funds 
D) commercial banks

Question 14

During the 2007-2009 financial crisis, state and local governments now found their interest costs rising. Which of the following were causes of this?

Accepted Answer

A) lower tax revenues because of the weaker economy 
B) weakened value of monoline insurance guarantees on their debt 
C) both A and B 
D) none of the above 
A) lower tax revenues because of the weaker economy 
B) weakened value of monoline insurance guarantees on their debt 
C) both A and B 
D) none of the above

Question 15

Casualty insurance can be provided in either named-peril policies or open-peril policies.

Accepted Answer

A) True 
 B)False

Question 16

Property and casualty insurance protects against losses from fire, theft, storm, explosion, and even neglect.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees?

Accepted Answer

A) Raise the maximum income cap on which workers and employers are taxed. 
B) Provide more generous annual cost of living increases. 
C) Raise the minimum age for receiving benefits. 
D) Reduce the amount of future benefits. 
A) Raise the maximum income cap on which workers and employers are taxed. 
B) Provide more generous annual cost of living increases. 
C) Raise the minimum age for receiving benefits. 
D) Reduce the amount of future benefits.

Question 18

Why must insurance companies screen applicants so carefully?

Accepted Answer

The answer of Why must insurance companies screen applicants so...

Question 19

Between 1995 and 2009, the amount of credit default swaps (CDSs)exploded, along with the marketing of securitized mortgages. By their peak in 2008, there were about ________ of CDSs outstanding.

Accepted Answer

A) $62 million 
B) $62 billion 
C) $6.2 trillion 
D) $62 trillion 
A) $62 million 
B) $62 billion 
C) $6.2 trillion 
D) $62 trillion

Question 20

Who has the strongest incentive to monitor the performance of individual pension plans such as Keoghs and IRAs? Explain.

Accepted Answer

The individuals who have the strongest i

Exam 21: Insurance Companies and Pension Funds

The certainty equivalent for risk-averse people who buy insurance is the

What insurance protects against liability for harm the insured may cause to others as a result of product failure or accidents?

Which of the following do not help people during their retirement?

Which of the following statements regarding the funding of Social Security is false?

Which of the following is true of life insurance companies?

Which of the following pensions does not promise employees a specific retirement benefit?

A term life insurance policy provides

A company's pension plan promises employees a specific amount of income when they retire. However, the plan does not have the assets to meet these future obligations to employees. This plan represents a defined-________ plan that is ________.

Describe how insurance companies try to reduce adverse selection and moral hazards.

If automobile insurance companies were prevented from charging risk-based premiums, but could selectively screen potential policyholders, the likely effect would be to

Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of ________.

(I)A majority of life insurance companies are organized as mutual companies. (II)State governments have the major responsibility for regulating insurance companies.

Of the following financial intermediaries, which holds the least liquid assets?

During the 2007-2009 financial crisis, state and local governments now found their interest costs rising. Which of the following were causes of this?

Casualty insurance can be provided in either named-peril policies or open-peril policies.

Property and casualty insurance protects against losses from fire, theft, storm, explosion, and even neglect.

Which of the following is not a proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees?

Why must insurance companies screen applicants so carefully?

Between 1995 and 2009, the amount of credit default swaps (CDSs)exploded, along with the marketing of securitized mortgages. By their peak in 2008, there were about ________ of CDSs outstanding.

Who has the strongest incentive to monitor the performance of individual pension plans such as Keoghs and IRAs? Explain.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

A company's pension plan promises employees a specific amount of income when they retire. However, the plan does not have the assets to meet these future obligations to employees. This plan represents a defined- plan that is .