Question

1. As a deterrent to keep individuals from excessively submitting claims to the insurance policy and for policyholders to follow responsible behavior, particular in the case of auto insurance, insurance companies commonly use

a) 100% coverage

b)inflation protection.

c) risk-based premiums.

d) no-fault insurance.

e) changing phone numbers.

2. A diversified portfolio consists of two or more assets

a) whose rates of return do not have high positive correlation.

b) whose rates of return do not have zero correlation.

c) whose rates of return do not have high negative correlation.

d) whose rates of return are guaranteed to be positive.

e) whose rates of return are guaranteed to be negative.

3. In measuring the performance of stocks or bonds over a given year, the rate of return takes into account

a) transactions costs, due to management fees or trades.

b) capital gains or losses due to changes in asset prices.

c) dividend or interest (coupon) payments during the year.

d) all of the above.

e) none of the above

4. A homeowner's policy typically covers a total loss to the home equal to

a) the market value based upon the initial year that the policy was taken out.

b) its initial value when it was newly built.

c) its current market value.

d)its replacement cost.

e) the balance on the existing mortgage.

5. The annual performance of an individual or market basket of stocks in percentage terms is measured by the

a) interest rate.

b) rate of return.

c) dividend payment.

d) stock price.

e) capital gain.

Answer 1

1. 100% coverage

2. whose rates of return do not have high negative correlation because if the securities are highly correlated they have less risk and good returns

3. all of the above , the performance can be measured by the capital loss or the dividend received in the year as well as all the flows of the assets

4.a) the market value based upon the initial year that the policy was taken out.

5.stock price