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Question
Which of the following is the major weakness of the linear probability model?
A. The model is based on past data of the borrower.
B. Measurement of the loan risk is difficult.
C. Estimated probabilities of default may lie outside the interval 0 to 1.
D. Neither the market value of a firm's assets nor the volatility of the firm's assets is directly observed.
E. None of the above is a weakness of the linear probability model.
Answer
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Related questions
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The Insurance Regulatory Information System (IRIS) is a standardized examination system used to measure the profitability of insurance companies.
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In the case of an insurance company failure, policyholders immediately receive a payout of the cash surrender value of their policies.
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The two policy categories offered by property-casualty insurers that are most likely to be subject to rate regulation are
A. auto insurance and worker's compensation.
B. homeowner multiple peril and commercial multiple peril.
C. earthquake and flood.
D. surety bonds and financial guaranty.
E. product liability and farm owner multiple peril.
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The McCarran-Ferguson Act of 1945
A. separated commercial banking from insurance activities.
B. mandated federal insurance company charters.
C. stipulated that insurance companies are to be regulated at the state level.
D. initiated a national insurance guaranty fund.
E. limited insurance company assets to low risk government securities.
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The surrender value of an insurance policy is
A. the expected payment commitment on existing policy contracts.
B. a fund established and held separately from the company's other assets.
C. the cash value paid to the policyholder if the policy is terminated before it matures.
D. the same as the endowment payout.
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B. pays only fixed returns to groups of employees.
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A. Position trading.
B. Pure arbitrage.
C. Liquidity trading.
D. Risk arbitrage trading.
E. Program trading.
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A. has publicly-traded common stock.
B. provides equity funds to companies that already have publicly traded common stock.
C. is a subsidiary of a nonfinancial corporation.
D. provides debt funding to only to established corporations.
E. is subject to more stringent disclosure requirements than other venture capital firms.
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Which of the following would be a key area of activity for an investment bank specializing in the commercial side of the business?
A. Purchase of existing securities.
B. Sale of securities in the secondary market.
C. Brokerage of existing securities.
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