Q8. Which of the following has a positive relationship with the demand for life insurance?

A)   An investor’s aversion to risk.

B)   The level of financial wealth.

C)   The volatility of the investor’s human capital.

Q9. Which of the following statements is least accurate regarding human capital?

A)   If an investor’s human capital is equity-like they should allocate a greater amount of their financial capital to fixed income investments.

B)   The demand for life insurance will increase if human capital is bond-like.

C)   When possible, one should maximize the correlation of human and financial capital.

答案和详解如下：

Q8. Which of the following has a positive relationship with the demand for life insurance?

A)   An investor’s aversion to risk.

B)   The level of financial wealth.

C)   The volatility of the investor’s human capital.

Correct answer is A)

An investor’s aversion to risk and the demand for life insurance have a positive relationship – the greater their level of risk aversion the more life insurance they demand. The level of financial wealth and demand for life insurance have a negative relationship as does the volatility of the investor’s human capital and demand for life insurance.

Q9. Which of the following statements is least accurate regarding human capital?

A)   If an investor’s human capital is equity-like they should allocate a greater amount of their financial capital to fixed income investments.

B)   The demand for life insurance will increase if human capital is bond-like.

C)   When possible, one should maximize the correlation of human and financial capital.

Correct answer is C)         

One should always offset the risk of their human capital with the risk of their financial capital and minimize the correlation between the two. If an investor’s human capital is equity-like they should reduce the correlation with their financial capital by allocating a greater amount of their financial capital to fixed income investments and visa versa. The demand for life insurance will increase if human capital is bond-like and decrease if human capital is equity-like.

Thank you!