High deductible group health insurance plans have all of the following characteristics EXCEPT

High deductible group health insurance plans have all of the following characteristics EXCEPT A) health savings accounts or health reimbursement accounts. B) high dollar deductibles. C) low coverage limits. D) major medical insur

If an applicant for insurance informs his broker of all material facts regarding the risk, and the ...

If an applicant for insurance informs his broker of all material facts regarding the risk, and the broker does not pass those facts along to the insurer, it's possible that the insurer can legally deny any subsequent claim. T/F?

Which of the following statements is false? A) Assessment mutuals provide primarily fire and windstorm insurance. B) A stock insurance company is a profit-making venture in both life and property insurance. C) Dividends are paid to sto

Which of the following statements is correct about the fair rate of return for insurance ...

Which of the following statements is correct about the fair rate of return for insurance companies? A) The fair rate of return is measured using the expense ratio. B) The fair rate of return is governed by law. C) The fair rate of retu

A difference between a contract issued on a "named peril" basis versus an "open ...

A difference between a contract issued on a "named peril" basis versus an "open peril" or "all-risk" basis is: A) the "named peril" contract usually covers more perils B) the "named peril" c

Midlands Insurance has 100 policyholders. It expects that this year's losses for all of its ...

Midlands Insurance has 100 policyholders. It expects that this year's losses for all of its policyholders will total $111,000. The predicted expenses of operating the insurance pool are $46,000, expected investment earnings are $20,000, and the

Most investment income of insurance companies comes from medium to high risk investments in order to ...

Most investment income of insurance companies comes from medium to high risk investments in order to reduce the price of insurance as much as possible. T/F?

The loading expenses plus a fair rate of return minus any investment income is the starting point ...

The loading expenses plus a fair rate of return minus any investment income is the starting point for the calculation of the risk premium for an insurance policy. T/F?

Which of the following statements about the counterparty to a risk management derivatives contract ...

Which of the following statements about the counterparty to a risk management derivatives contract is correct? A) The counterparty has the same expectations about future price movements as the risk manager. B) The counterparty charges a fix

Corn call options with a $1.70 strike price are trading for a $0.15 premium. Farmer Jayne decides to ...

Corn call options with a $1.70 strike price are trading for a $0.15 premium. Farmer Jayne decides to hedge her 20,000 bushels of corn by selling short call options. Six-month interest rates are 4.0% and she plans to close her position and sell her co

When the chance of loss is great and the potential for loss severity is also very high, insurance is ...

When the chance of loss is great and the potential for loss severity is also very high, insurance is the best approach to the risk management problem. T/F?

Interest rates on the U.S. dollar are 6.5% and euro rates are 5.5%. The dollar per euro spot rate is ...

Interest rates on the U.S. dollar are 6.5% and euro rates are 5.5%. The dollar per euro spot rate is 0.950. What is the arbitrage profit on a required 1 million euro payment if the forward rate is 0.980 dollars per euro and the exchange occurs in one

Your company can get yen loans for 2.0%. Dollar rates on the same loans are 4.5%. The spot yen per ...

Your company can get yen loans for 2.0%. Dollar rates on the same loans are 4.5%. The spot yen per dollar exchange rate is 104. The forward rates for years 1 thru 4 are, 101.51, 99.08, 96.71, and 94.40, respectively. What is the dollar value of a 4-y

A strategy consists of buying a market index product at $830 and longing a put on the index with a ...

A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, what is the profit or loss at expiration (in 6 months) if the marke

When the variance of a probability distribution is $81,000 the risk equals:

When the variance of a probability distribution is $81,000 the risk equals: A) $900 B) $6,561,000,000 C) $284.61 D) There is not enough information to calculate the risk.

Lisa has three fire insurance policies on her office building. The policy from company A is for ...

Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each. If Lisa has a $360,000 loss, how much of the loss will be covered by each policy

The spot price of gasoline is 258 cents per gallon and the annualized risk free interest rate is ...

The spot price of gasoline is 258 cents per gallon and the annualized risk free interest rate is 4.0%. Given a lease rate of 1.0%, a continuously paid storage rate of 0.5%, and a convenience yield of 0.75%, what is the no-arbitrage price range of a 1

Given a 25% chance of a 600,000 bushel yield and a 75% chance of a 500,000 bushel yield, what ...

Given a 25% chance of a 600,000 bushel yield and a 75% chance of a 500,000 bushel yield, what quantity should the farmer hedge in order to protect against an uncertain harvest? Assume the farmer is willing to take reasonable risk. A) 0 B) 5

A firm provides a service that benefits from decreasing employment. This firm has a risk exposure to ...

A firm provides a service that benefits from decreasing employment. This firm has a risk exposure to macro event. All other variables being equal, which of the following derivative securities is the firm most likely use to hedge its exposure? A)

Farmer Jayne decides to hedge 10,000 bushels of corn by purchasing put options with a strike price ...

Farmer Jayne decides to hedge 10,000 bushels of corn by purchasing put options with a strike price of $1.80. Six-month interest rates are 4.0% and the total premium on all puts is $1,200. If her total costs are $1.65 per bushel, what is her marginal

What is the price of a $60 strike put? Assume S = $63.75, σ = 0.20, r = 0.055, the stock pays no ...

What is the price of a $60 strike put? Assume S = $63.75, σ = 0.20, r = 0.055, the stock pays no dividend and the option expires in 50 days? A) $0.66 B) $0.55 C) $0.44 D) $0.33

Assume that a $50 strike put pays a 2.0% continuous dividend, r = 0.07, σ = 0.25, and the stock ...

Assume that a $50 strike put pays a 2.0% continuous dividend, r = 0.07, σ = 0.25, and the stock price is $48.00. What is the profit or loss, per share, for a short put position if the option expires in 60 days and the price rises to $50.00 after 5 da

In a specific wager, Pat is paid $5.00 if the price of ABC Corp. is above $85.00. Currently, ABC ...

In a specific wager, Pat is paid $5.00 if the price of ABC Corp. is above $85.00. Currently, ABC Corp. price is $75.00, σ = 0.25, r = 0.04, div = 0 and the wager lasts 6 months. Pat receives nothing if the price is below $85.00. What is the value of

The underlying stock for a European exchange option has S = $27.15, div = 2.0%, and σ = 0.18. The ...

The underlying stock for a European exchange option has S = $27.15, div = 2.0%, and σ = 0.18. The strike stock has S = $30.00, div = 0.0%, and σ = 0.22. The two stocks have a correlation coefficient of 0.73. If the exchange option expires in 2

Suppose the spot exchange rate is $1.43 per British pound and the strike on a dollar denominated ...

Suppose the spot exchange rate is $1.43 per British pound and the strike on a dollar denominated pound call is $1.30. Assume r = 0.045, rf = 0.06, σ = 0.15 and the option expires in 180 days. What is the call option price? A) $0.133 B) $0.1

Consider a two-period binomial model, where each period is 6 months. Assume the stock price is ...

Consider a two-period binomial model, where each period is 6 months. Assume the stock price is $46.00, σ = 0.28, r = 0.06 and the dividend yield is 2.0%. What is the maximum approximate strike price where early exercise would occur with an American c

An investor enters into a 2-year swap agreement to euros at $1.32 per euro. Soon after the swap is ...

An investor enters into a 2-year swap agreement to euros at $1.32 per euro. Soon after the swap is created forward prices rise and the new swap price on a similar swap is $1.45. If dollar denominated interest rates are 4.0% and 4.5% on 1- and 2-year

A stock is selling for $68.50. Interest rates are 6.0% and the returns on the stock have a standard ...

A stock is selling for $68.50. Interest rates are 6.0% and the returns on the stock have a standard deviation of 32.0%. What is the forecasted price of the stock using 3-month periods at Suudu? A) $74.08 B) $94.24 C) $100.17 D) $1

Dan picked up his friend Rodney to drive to their softball game. Both Dan and Rodney have a Personal ...

Dan picked up his friend Rodney to drive to their softball game. Both Dan and Rodney have a Personal Auto Policy (PAP) with $5,000 of medical payments coverage. Dan hit a parked car, and Rodney was injured, incurring $9,000 of medical expenses. How w

Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01. You short 100 $35 strike calls at 68 days until ...

Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01. You short 100 $35 strike calls at 68 days until expiration. Under a delta hedge position, what is your overnight profit/loss if the stock rises to $34.50? A) $9.23 loss B) $9.23 gain C

Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01. You short 100 $35 strike puts at 68 days until ...

Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01. You short 100 $35 strike puts at 68 days until expiration. Under a delta hedge position, what is your overnight profit/loss if the stock rises to $34.50? Assume no cost to short stock. A) $8.30

A 4-year bond with a price of 100.696 exists. The duration on the bond is 3.674. If the yield rises ...

A 4-year bond with a price of 100.696 exists. The duration on the bond is 3.674. If the yield rises from 5.8% to 6.2%, what is the new bond price as estimated by the duration? A) $98.40 B) $99.30 C) $100.60 D) $101.40

Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value ...

Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 percent. Th

A stock is valued at $28.00. The annual expected return is 9.0% and the standard deviation of ...

A stock is valued at $28.00. The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%. If the stock is lognormally distributed, what is the price of the stock given a one standard deviation move up after 4 years?