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Joan faces an 80% chance of having a loss of $0 and a 20% chance of having a loss of $10. Mary also faces an 80% chance of having a loss of $0 and a 20% chance of having a loss of $10. Harry faces a 80% chance of having a loss of $0 and a 20% chance of having a loss of $25.
What is the actuarially fair premium (AFP individually for Mary, Joan, and Harry)?
What is the COV for both Joan and Mary Individually?
What would the COV be for the insurance company be if they sold both Joan and Mary insurance for their AFP and they were in the same homogeneous risk pool?
If Harry is added to the risk pool for insurance. What would the expected loss be?
Explain if the pool is still homogeneous or not?
If the insurer charges all of them a price of $2.80, is that price a good deal for each of them? Why or why not? (hint – think about the AFP for each)
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. If Schenkel has 445,000 shares out..
Currency futures pricing are based on the spot exchange rate adjusted by the interest rate differential in the two countries. A short hedge involves selling futures contracts to cover the risk on a position in the spot market. Hedging with options re..
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Joey realizes that he has charged too much on his credit card and has racked up $4,500 in debt. If he can pay $175 each month and the card charges 16 percent APR (compounded monthly), how long will it take him to pay off the debt?
Which of these key organizational behaviors helps customers to interact with your organization?
Burklin, Inc., has earnings of $19.5 million and is projected to grow at a constant rate of 6 percent forever because of the benefits gained from the learning curve. Currently, all earnings are paid out as dividends. Estimate the value of the stock.
A company's 5-year bonds are yielding 8.25% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to b..
Your client is 21 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $12,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average re..
Mike Bayles has just arranged to purchase a $460,000 vacation home in the Bahamas with a 25 percent down payment. The mortgage has a 5.2 percent stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 ye..
A company recently paid a $1.05 dividend. The dividend is expected to grow at a 16.1 percent rate. At a current stock price of $71.75, what return are shareholders expecting?
For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject?
What are some of the dangers and incentive problems of the financial sector getting too big and commonwealth Bank issues bonds on the capital market to raise financing for its loans.
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