Q1. Earnings risk, a type if risk associated with human capital, is best defined as the risk of:

A)   sudden, unexpected loss of human capital caused by premature death.

B)   an inability of financial assets to meet retirement living expenses, because you live longer than expected or financial capital has experienced an unexpected, severe drop in value.

C)   becoming unemployed, disabled, or otherwise unable to work.

Q2. Which of the following is NOT a typical remedy for earnings risk?

A)   Increasing the savings rate.

B)   Minimizing the correlation of human and financial capital.

C)   A lifetime-payout annuity.

Q3. Which of the following is NOT a possible remedy for earnings risk?

A)   Maximize the correlation of human and financial capital.

B)   Increase the savings rate.

C)   Investment in unrelated, diversifying financial assets.

Q4. Life insurance is most commonly used to hedge against:

A)   earnings risk.

B)   longevity risk.

C)   mortality risk.

Q5. Which of the following statements regarding an annuity is least accurate?

A)   A difference between an annuity and a 401k or 403b account is there is no limitation on the maximum amount that can be placed into an annuity.

B)   If the investor lives too long it is possible for the annuity to run out of money resulting in the payments from the annuity stopping.

C)   In an immediate annuity the purchaser of the annuity invests a lump sum of money with the payments from the annuity starting immediately.

答案和详解如下：

Q1. Earnings risk, a type if risk associated with human capital, is best defined as the risk of:

A)   sudden, unexpected loss of human capital caused by premature death.

B)   an inability of financial assets to meet retirement living expenses, because you live longer than expected or financial capital has experienced an unexpected, severe drop in value.

C)   becoming unemployed, disabled, or otherwise unable to work.

Correct answer is C)

Earnings risk is the risk of becoming unemployed, disabled, or otherwise unable to work. The other choices describe the two other types of risk associated with human capital, mortality risk and longevity risk.

Q2. Which of the following is NOT a typical remedy for earnings risk?

A)   Increasing the savings rate.

B)   Minimizing the correlation of human and financial capital.

C)   A lifetime-payout annuity.

Correct answer is C)

Possible remedies for earnings risk include increasing the savings rate, minimizing the correlation of human and financial capital, and offsetting the risk of the human capital with financial capital. A lifetime-payout annuity is a common remedy for longevity risk.

Q3. Which of the following is NOT a possible remedy for earnings risk?

A)   Maximize the correlation of human and financial capital.

B)   Increase the savings rate.

C)   Investment in unrelated, diversifying financial assets.

Correct answer is A)

Possible remedies for earnings risk include: (1) increasing the savings rate, (2) minimizing the correlation of human and financial capital, and (3) offsetting the risk of the human capital with financial capital.

Q4. Life insurance is most commonly used to hedge against:

A)   earnings risk.

B)   longevity risk.

C)   mortality risk.

Correct answer is C)         

Life insurance is the most commonly employed hedge against mortality risk.

Q5. Which of the following statements regarding an annuity is least accurate?

A)   A difference between an annuity and a 401k or 403b account is there is no limitation on the maximum amount that can be placed into an annuity.

B)   If the investor lives too long it is possible for the annuity to run out of money resulting in the payments from the annuity stopping.

C)   In an immediate annuity the purchaser of the annuity invests a lump sum of money with the payments from the annuity starting immediately.

Correct answer is B)         

An investor has two options with an annuity: 1) receive a lump sum (or take periodic withdrawals) from a deferred annuity or 2) receive regular payments from the annuity in which case the payments will continue until the person dies. The payments will be at a fixed level if it is a fixed annuity or at a fluctuating level if it is a variable annuity but the annuity contract guarantees the payments will continue until the person dies. The payments may be zero from a variable annuity if the investment returns of the underlying asset are zero or negative.

Thank you!