Q1. The volatility of human capital and the demand for life insurance are:

A)   positively correlated.

B)   negatively correlated.

C)   uncorrelated.

Q2. Factors that are positively related to the demand for life insurance include:

A)   human capital volatility and risk aversion.

B)   risk aversion and probability of death.

C)   financial wealth and probability of death.

Q3. Which of the following statements regarding human capital volatility is most accurate? When human-capital is bond-like, an investor’s financial assets should be:

A)   allocated towards low risk assets and their demand for life insurance will increase.

B)   more aggressively allocated and their demand for life insurance will increase.

C)   more aggressively allocated and their demand for life insurance will decrease.

Q4. Financial wealth and the demand for life insurance have:

A)   a positive relationship.

B)   either a positive or a negative relationship depending upon the individual’s level of wealth.

C)   a negative relationship.

答案和详解如下：

Q1. The volatility of human capital and the demand for life insurance are:

A)   positively correlated.

B)   negatively correlated.

C)   uncorrelated.

Correct answer is B)

Human capital volatility and demand for life insurance are negatively correlated. Life insurance acts as a substitute for human capital, so its face value depends on the perceived value of the human capital it replaces. If the human capital has high volatility (equity-like), a higher discount rate is used to estimate its present value. Thus, human capital with high volatility has a smaller present value than human capital with low volatility.

Q2. Factors that are positively related to the demand for life insurance include:

A)   human capital volatility and risk aversion.

B)   risk aversion and probability of death.

C)   financial wealth and probability of death.

Correct answer is B)

As either risk aversion or probability of death increase, so does the demand for life insurance. Human capital volatility and financial wealth are both negatively correlated with the demand for life insurance.

Q3. Which of the following statements regarding human capital volatility is most accurate? When human-capital is bond-like, an investor’s financial assets should be:

A)   allocated towards low risk assets and their demand for life insurance will increase.

B)   more aggressively allocated and their demand for life insurance will increase.

C)   more aggressively allocated and their demand for life insurance will decrease.

Correct answer is B)

When human-capital is bond-like, an investor’s financial assets can be more aggressively allocated and the demand for life insurance will increase. On the other hand, when human-capital is equity-like, an investor’s financial assets should be allocated towards low risk assets and their demand for life insurance will decrease.

Q4. Financial wealth and the demand for life insurance have:

A)   a positive relationship.

B)   either a positive or a negative relationship depending upon the individual’s level of wealth.

C)   a negative relationship.

Correct answer is C)

Financial wealth and the demand for life insurance have a negative relationship which means if a person has a lot of financial wealth their need for life insurance is small and visa versa.

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