Question

1. Apple’s decision to invest billions in a driverless car is related to what area of finance?

2. A farmer seeking to financial protection in the event of a catastrophic hurricane would involve what area of finance?

3. Jose and his girlfriend Lucy both drive a Honda Accord, yet Jose's insurance premiums are $1400, while Lucy's insurance premiums are $900 for full coverage. What Core Principle of Money and Banking applies to this example? Why are the insurance premiums different?

Finance homework, help !!!

Answer 1

1.in the first case the apple's decision to invest in one of the totally unrelated business which is not in the usual line of business is diversification strategy.they are highly foucusing on their research and development activities and investing huge amount of money in it. investing in totally un related areas will offset the risk from one area to another.

2.farmer seeking financial protection in the event of hurricane will come under the catastophic insurance on crops which protects farmers from various kinds of natural disasters usually the amount to be paid will be very high or uncertain and it will be difficult for the insurence compaies to pay them. it will paid through reinsurance.

3.in this case jose and lucy has different premium amounts to be paid for the same asset because premium differs from person to person and many other factors , on the basis of the principle risk requires compensation premium is more paid by men in many cases.because many datas shows that men tends to make more accidents and they will drive more than women .it is due to this reason more premium is paid by jose than lucy.

Answer 2

ANSWERS :

1. Apple’s decision to invest billions in driverless car will come under R & D  finance for diversification. Driverless car is a new area and unrelated to the core area. This may work as risk management when core area may not do well and driverless car project may do well. Moreover, driverless car is advanced technological development and may bring fortunes to Apple. 

2.  It  is insurance finance. Protection against hurricane by insurance to farmers is provided by insurance company at extremely high risk insurance premiums. 

3. Insurance premiums are different for men and women. Women are more careful drivers and less accident prone. So, they are charged less premium for the same asset. Men, on the other hand, are casual, risk -enjoying person, moody. So they are more accident prone and hence charged higher premium for the same asset.