Insurance and Risk Management 10

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Objective Questions and Answers of MBA: Insurance and Risk Management 10

Subject: Objective Questions and Answers of MBA: Insurance and Risk Management 10

Part 10: Objective questions and answers of Insurance and Risk Management

 

Q1. An 'overdraft' economy is one in which:

a) All firms have an overdraft

b) Financial markets play no role in borrowing and lending

c) Firms rely on internal funds

d) Borrowing and lending take place largely through intermediaries

 

Q2. As the level of interest rates in the economy fall, the demand for money, ceteris paribus:

a) Will remain unchanged

b) Could move in either direction depending on other factors

c) Increase

d) Will fall more or less in line with the change in interest rates

 

Q3. Assume that a central bank is willing to buy 14 day repos for $1m, with a repurchase price of $1,002,000. What rate of interest is the central bank charging?

a) 0.2%

b) 5.21%

c) 2.0%

d) 0.521%

e) 52.1%

 

Q4. Assume that the central bank's main responsibility is to minimize the rate of inflation. A release of economic data suggests that inflationary pressure is increasing. In the circumstances the yield curve is likely to:

a) Become steeper

b) Remain unchanged

c) Increase its downward slope

d) Slope downward

e) Become flat

 

Q5. Five assets have expected mean returns and variances as follows: (a) 8% 15; (b) 12% 18;

(c) 11% 18; (d) 15% 20; (e) 11% 17. Which of these assets will be rejected by all rational riskaverse investors?

a) B

b) D

c) A

d) E

e) C

 

Q6. Because their flows of funds are largely contractual, life assurance companies can hold:

a) Fewer liquid assets than pension funds

b) More overseas shares than investment trusts

c) More government bonds than banks

d) More company shares than unit trusts

e) A lower liquid assets ratio than deposit-taking institutions

 

Q7. Corporate bonds have higher yields than government bonds because:

a) Corporate bonds have higher risk

b) There is a smaller market

c) Government bonds are inflation-proof

d) Firms can afford higher interest payments

e) They have longer maturities

 

Q8. Given a fall in interest rates, the largest price change will occur in:

a) Treasury bills with three months to maturity

b) Six month time deposits

c) Perpetual bonds

d) Bonds with 20 years to maturity

e) Bonds with five years to maturity

 

Q9. If asset a has a variance of 49 while asset b has a variance of 36 while the correlation coefficient of their returns is 0.75, the covariance of the returns of the two assets is:

a) 63.75

b) 13.75

c) 9.75

d) 31.5

e) 1323

 

Q10. If investors become income risk averse, they will:

a) Hold long-dated assets to redemption

b) Buy equities

c) Sell long-dated assets

d) Buy short-dated bonds

e) Hold cash

 

Q11. An asset began the year with a price of £2.50. It paid income of 30p and finished the year at a price of £2.75. Over the year its rate of return was:

a) 20%

b) 10%

c) 12%

d) 55p

e) 22%

 

Q12. Asset a has a variance of 25 while asset b has a variance of 9. The covariance of returns is -15. The proportion of a two asset portfolio that would have to be invested in a in order to create a perfectly riskless portfolio is:

a) 0.375

b) 0.675

c) 0.3

d) 0.5

e) 0.6

 

Q13. Bank deposit insurance was set up:

a) To improve the operation of us monetary policy

b) To deter people from taking risks in derivatives markets

c) Following the savings and loan collapses of the 1980s

d) Following the bank collapses of the 1930s

 

Q14. By taking out insurance cover an individual:

a) Converts the possibility of large loss to certainty of a small one

b) Reduces the certainty of major loss

c) Transfers the risk to someone else

d) Reduces the cost of an accident

e) Reduces the risk of an accident

 

Q15. Diversification is one way in which insurance companies can protect themselves against:

a) The law of large numbers

b) Random fluctuation

c) Positively correlated risks

d) Parameter change

e) Moral hazard

 

Q16. Given a current rate of inflation of 3 per cent, and an expected rate of inflation next year of 5 per cent, what increase in nominal wages will workers seek in order to increase their real wage by 2 per cent?

a) 7 per cent

b) 4 per cent

c) 5 per cent

d) 6 per cent

e) 3 per cent

 

Q17. Government appointed members of the monetary policy committee of the bank of

England are appointed:

a) For set periods up to five years

b) For one year at a time

c) For unspecified periods

d) Frequently

e) For unspecified periods with a maximum of five years

f) For 14 years

 

Q18. If a firm has one million shares in issue, earns profits of £200,000 and operates a retention ratio of 0.4, the dividend per share will be:

a) 12p

b) 10p

c) 8p

d) 4p

e) 20p

 

Q19. If interest rates rise, the present value of any future earnings is bound to:

a) Increase in risk

b) Fall

c) Suffer from inflation

d) Become more certain

e) Rise

 

Q20. If long-term interest rates rise from 5 per cent to 6 per cent, the price of a perpetual uk government bond with a 7 per cent coupon will change by:

a) +23.33

b) +14

c) 140

d) -14

e) -23.33

 

Part 10: Objective questions and answers of Insurance and Risk Management

 

Q1. Answer d

 

Q2. Answer c

 

Q3. Answer b

 

Q4. Answer a

 

Q5. Answer e

 

Q6. Answer e

 

Q7. Answer a

 

Q8. Answer c

 

Q9. Answer d

 

Q10. Answer a

 

Q11. Answer e

 

Q12. Answer a

 

Q13. Answer d

 

Q14. Answer a

 

Q15. Answer b

 

Q16. Answer a

 

Q17. Answer a

 

Q18. Answer a

 

Q19. Answer b

 

Q20. Answer e

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