Statistically, teenage drivers are more likely to have an automobile accident than adult drivers. As a result, insurance companies charge higher insurance premiums for teenager drivers. Suppose one insurance company decided to charge teenagers and adults the same premium based on the average risk of an accident for all drivers. Using your knowledge of the problems associated with asymmetric information explain whether you think this insurance company will be profitable.
Answer to relevant QuestionsSuppose you have a defined-contribution pension plan. As you go through your working life, in what order would you choose to have the following portfolio allocations: (a) 100 percent bonds and money-market instruments, (b) ...What are the benefits of collaboration between a large appliance retailer and a finance company?Explain why financial institutions such as pension funds and insurance companies are not as vulnerable to runs as money market mutual funds and securities dealers.If banks’ fragility arises from the fact that they provide liquidity to depositors, as a bank manager, how might you reduce the fragility of your institution?You are the lender of last resort and an institution approaches you for a loan. You assess that the institution has $800 million in assets, mostly in long-term loans, and $600 million in liabilities. The institution is ...
Post your question