Author Question: Risk-averse individuals make risky investments A) never. B) when the investment's expected ... (Read 156 times)

mcmcdaniel

  • Hero Member
  • *****
  • Posts: 550
Risk-averse individuals make risky investments
 
  A) never.
  B) when the investment's expected return exceeds the return on a non-risky investment.
  C) when the investment's expected return adequately compensates for the risk.
  D) only when they are feeling irrational.

Question 2

Explain why insurance companies usually do not offer earthquake insurance.
 
  What will be an ideal response?


mk6555

  • Sr. Member
  • ****
  • Posts: 310
Answer to Question 1

C

Answer to Question 2

Insurance companies diversify their risk by covering many people who mostly have uncorrelated expected losses. However, an earthquake usually causes losses to many people in an area. Thus, earthquake losses are very much positively correlated and cannot be easily diversified. Insurance companies do not want to face losses they cannot easily diversify.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Asthma occurs in one in 11 children and in one in 12 adults. African Americans and Latinos have a higher risk for developing asthma than other groups.

Did you know?

Most women experience menopause in their 50s. However, in 1994, an Italian woman gave birth to a baby boy when she was 61 years old.

Did you know?

More than 4.4billion prescriptions were dispensed within the United States in 2016.

Did you know?

ACTH levels are normally highest in the early morning (between 6 and 8 A.M.) and lowest in the evening (between 6 and 11 P.M.). Therefore, a doctor who suspects abnormal levels looks for low ACTH in the morning and high ACTH in the evening.

Did you know?

Cyanide works by making the human body unable to use oxygen.

For a complete list of videos, visit our video library