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Independence Of Risks And Insurance

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Chapter 11
1. Why does the assumption of independence of risks matter in the example of insurance? What would happen to premiums if the probabilities of house burning were positively correlated?

14. Small firms can discover the abilities of their workers more quickly than large ones because they can observe the workers more closely at a variety of tasks. Does it then make sense for people with high abilities to go to small firms? Give some reasons why and some reasons why not.

Chapter 12
4. In some ways monitoring is easier in a partnership than a corporation, where shareholders monitor directors. In what ways is monitoring easier? In what ways is it not?

11. A friend convinces you that she has a great idea for business, and the two of you incorporate. You supply her with funds and let her make all of the executive decisions. Under the agreement you hold 30 percent of the firm's stock and your friend holds 70 percent. Why should you ever put yourself into a position where your friend's decision will carry the day, whether you agree with her or not? What does this tell you about problems that allegedly stem from separation of ownership and control?

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Chapter 11
Independence Of Risks And Insurance:

An indemnified risk is a risk which an insurer has the obligation of paying. An assumption of the independence of risk matter within an insurance example since it is normally considered appropriate to pass some risks associated to the insurance to the re-insurer with an aim of reducing the rate of risk exposure of the insurer. Most insurance programs have risk programs which has a goal of ensuring that the existing level of risk exposure to scenario such as losses is reduced. An existing sense of security after the basic needs is what an individual requires with an aim of ensuring that all needs are satisfied. The loss of economic security is an expected outcome in the cases of economic risk (Anderson & Brown, 2005).

Life is known to be full of uncertainties. In cases where losses occur and premiums have to be paid, accessing the various relationships in existence has to be taken into consideration before premiums are provided. In cases where the probabilities of houses are positively correlated risk pooling mechanism is normally employed with an aim of reducing the cost of the premium offered since the risk will also be reduced. In case where an individual suffers a loss, all are considered to suffer from the same loss. This therefore means that investors will require a risk premium since the total ...

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Financial Case Study

For the following assignment, I am tasked to analyze the company, Genworth Fin
ancial. I would like some assistance with understanding key elements of the assignment so that I can successfully write this lengthy paper. I have provided the website of the company which includes key financial data.

http://investor.genworth.com/phoenix.zhtml?c=175970&p=irol-reportsAnnual

Please be as detailed as possible.

Here is the assignment:

Using the publicly traded company (Genworth Financial) identified and approved during Week One, submit one report with three 1,050-1,400-word sections regarding that company's long-term financing policies and capital structure (section 1), risk management policies (section 2), and an acquisition analysis for that same company (section 3). Please note the last requirement of the acquisition analysis and its association with the risk portion of the report.

Section 1: Report on the company's long-term financing policy & capital structure.

a. Identify the firm's most recent long-term financing decision (e.g., debt, IPO, seasoned equity offering, secondary offering). Analyze the economic, business, and competitive background in which the financing occurred, and identify cost and risk trade-offs.

b. Identify your firm's book value, market value, and levered value according to the M&M model. For a 20 percent increase in assets, perform a quantitative analysis and recommend the optimal capital structure mix for your company. Your analysis should include an estimation of that company's cost of capital, price per share, and market value of the firm.

c. Discuss what changes you think would occur to your finance policy and capital structure if your firm was forced to consider re-organization and bankruptcy strategies.

d. Assume that your firm will be investing in the global market. What international investment and financing opportunities would you consider - and why? Also, discuss foreign exchange risk and give an example that analyzes how foreign exchange rates could cause a loss to the firm.

Section 2: Use the following list of risk management tools and describe the circumstances under which they would be applied to the risk categories of corporate (including risk associated with acquisition analysis and capital budgeting), economic, foreign currency, political, and other relevant global business risks.

e. Black-Scholes options pricing model

f. Simulation analysis

g. Hedging

h. Feel free to add other tools that you find that are relevant to your chosen company.

Section 3: This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company.

i. This report should clearly identify the following:

1) Your proposed acquisition terms

2) Price

3) Financing

4) Potential negotiation strategies

j. Supporting financial data should include the following:

1) Price/earnings ratios

2) Book value

3) Current market value

4) Liquidation

5) Diluted price per share

6) Capital Budgeting tools learned from FIN 544 (NPV, IRR, Profitablility index, payback - optional: Discounted Payback and Modified Internal Rate of Return)

k. Discuss the general risks inherent in an acquisition strategy.

l. Discuss the specific risks that should be included in the quantitative analysis. For example, what risk factors should be included in the discount rate (sometimes known as the hurdle rate, or required rate of return).

Note: Use MS Excel® spreadsheets as support showing your computations where applicable.

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