Question: Q1 a) If higher leverage is associated with greater risk, explain why the process of deleveraging (reducing leverage) can be destabilizing. b) You wish to

Q1

a) If higher leverage is associated with greater risk, explain why the process of deleveraging (reducing leverage) can be destabilizing.

b)

You wish to buy an annuity that makes monthly payments for as long as you live. Describe what happens to the purchase price of the annuity if:

(1) your age at the time of purchase goes up, (10 points)

(2) the size of the monthly payment rises, and (10 points)

(3) your health improves. (10 points)

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