Question

By offering a menu of policies with different premiums and deductibles, insurance companies can _____ their customers; for example, a low-risk customer will often buy insurance with a lower _____ but a higher _____ than a high-risk customer.
A. signal; deductible; premium
B. signal; premium; deductible
C. screen; deductible; premium
D. screen; premium; deductible
Suppose you are asked to evaluate a project in which you will receive $1,000 one year from now, receive $2,000 two years from now, and incur costs of $400 now. What is the net present value of this project if the interest rate is 10%?
A. $2,327.27
B. $2,561.98
C. $2,161.98
D. $2,600

Answer 1

The answer to the first question is C. screen;deductible;premium. By offering a menu of policies with different premiums and deductibles, insurance companies can screen their customers; for example, a low-risk customer will often buy insurance with a lower deductible but a higher premium than a high-risk customer.

The answer to the second question is C $2, 161.98.