ARM 401 Segment C Assignment 9 Questions and
Answers| Latest Update 100% Solved
The chief financial officer of XYZ Insurance Company believes that $50 million is the appropriate
capital charge for the company's underwriting division. The division is predicted to generate
revenue of $25 million this year and expenses of $22 million. Assuming a risk-free rate of 2% on
the capital charge, what is this division's return on capital (ROC)? 8.00%
Jeremy purchased some long-term corporate bonds when he retired. He plans to use the
periodic interest payments from the bonds to supplement his other sources of retirement
income. However, some of the companies that issued the bonds that Jeremy purchased may
become insolvent and unable to make periodic interest payments. This risk that Jeremy took
when he invested in the corporate bonds is called Credit risk.
Which one of the following statements is true about an organization's balance sheet? The
balance sheet shows the financial position of a business on a specific date.
One financial risk for an insurer is that the insured will not pay all of the premiums when the
premiums are due. This type of risk is called Credit risk
Economic capital attempts to quantify the various risks faced by an organization. One such risk
includes such things as a flawed production process at a company or failed internal processes
because of data system problems. This type of risk is called Operational risk.
Like most insurance companies, the majority of Insurance Company's portfolio is invested in
bonds. If interest rates increase, the value of the bonds in the portfolio will decrease. This risk to
Insurance Company is called Interest rate risk.
On a local television program, a financial reporter stated, "There will be big news this week
about Sixth National Bank's bad real estate development loans. Unless they get acquired soon,
Answers| Latest Update 100% Solved
The chief financial officer of XYZ Insurance Company believes that $50 million is the appropriate
capital charge for the company's underwriting division. The division is predicted to generate
revenue of $25 million this year and expenses of $22 million. Assuming a risk-free rate of 2% on
the capital charge, what is this division's return on capital (ROC)? 8.00%
Jeremy purchased some long-term corporate bonds when he retired. He plans to use the
periodic interest payments from the bonds to supplement his other sources of retirement
income. However, some of the companies that issued the bonds that Jeremy purchased may
become insolvent and unable to make periodic interest payments. This risk that Jeremy took
when he invested in the corporate bonds is called Credit risk.
Which one of the following statements is true about an organization's balance sheet? The
balance sheet shows the financial position of a business on a specific date.
One financial risk for an insurer is that the insured will not pay all of the premiums when the
premiums are due. This type of risk is called Credit risk
Economic capital attempts to quantify the various risks faced by an organization. One such risk
includes such things as a flawed production process at a company or failed internal processes
because of data system problems. This type of risk is called Operational risk.
Like most insurance companies, the majority of Insurance Company's portfolio is invested in
bonds. If interest rates increase, the value of the bonds in the portfolio will decrease. This risk to
Insurance Company is called Interest rate risk.
On a local television program, a financial reporter stated, "There will be big news this week
about Sixth National Bank's bad real estate development loans. Unless they get acquired soon,
