Car insurance companies sell a large number of policies. Explain how this practice minimizes their risk.
Answer to relevant QuestionsExplain how liquidity problems can be an important source of systemic risk in the financial system.Consider an investment that pays off $800 or $1,400 per $1,000 invested with equal probability. Suppose you have $1,000 but are willing to borrow to increase your expected return. What would happen to the expected value ...You are considering three investments, each with the same expected value and each with two possible payoffs. The investments are sold only in increments of $500. You have $1,000 to invest and so you have the option of ...Your financial adviser recommends buying a 10-year bond with a face value of $1,000 and an annual coupon of $80. The current interest rate is 7 percent. What might you expect to pay for the bond (aside from brokerage fees)?Consider a one-year, 10-percent coupon bond with a face value of $1,000 issued by a private corporation. The one-year risk-free rate is 10 percent. The corporation has hit on hard times, and the consensus is that there is ...
Post your question