Answer:
4. Relationship Era
Explanation:
Relationship era refers to the organization shift towards building a long lasting relationship with customers and prospective customers. It involves building a long term beneficial relationship with customers. By calling customers and hosting free wellness evaluation, Hair It Is employees are building a long lasting relationship with their customers and taking a page out of the relationship era concepts. Having long lasting relationship with customers helps build up brand loyalty.
Hair It Is is using concepts from the Relationship Era by focusing on developing long-term relationships with customers through phone calls and free wellness evaluations.
Explanation:Hair It Is, is using concepts from the Relationship Era. In the Relationship Era, businesses focus on building long-term relationships with their customers, rather than just selling products or services. Hair It Is demonstrates this by calling customers to ensure their satisfaction and hosting free wellness evaluations, which helps them establish a strong bond with their customers. By doing so, they increase customer loyalty and encourage repeat visits. This approach is different from the Production Era, where businesses focused on mass production, or the Technology Era, which focuses on using technology to streamline processes.
Christie will be released on parole next month and she has a job interview tomorrow in a town eight hours from the prison. She will have to stay overnight before returning to prison. Which of the following will be most useful in getting Christie to her interview?a furlough.Supervised mandatory release.
Answer:
a. furlough
Explanation:
Furlough -
It refers to a temporary leave, which is granted only some special needs of the employer or the company, is referred to as a furlough.
The special needs can be some economic conditions, the leaves can be for short as well as long terms.
The leave is granted by the main authority of the institution or the government.
Hence, from the given scenario of the question,
Christie can give the interview, by taking a furlough, which can be granted in her case.
Which of the following is an example of business-to-consumer electronic commerce? Select one: a. Brenda files her income tax online. b. Canchi, a shoe manufacturer, conducts business over the Web with its retailers. c. Juan buys guitars for resale on Monsung. d. Reuben buys a pair of shoes on Mysticshoes. e. Neal places a bid for a mobile phone on the online auction site Feliciate.
Answer:
OPTION (d) is correct.
Explanation:
Business-to-consumer electronic commerce can be understood by the itself, it is generally come in role when a single customer can buy a good from companies site of business.
From the given options, OPTION (d) is right, because as we can see that Reuben who is a single consumer, buys a pair of shoes directly from the companies business site which is Mysticshoes.
Reuben buying a pair of shoes on Mysticshoes is an example of business-to-consumer electronic commerce where the transaction is directly between a business and a consumer.
Business-to-consumer (B2C) electronic commerce is a form of online transaction where businesses sell products or services directly to consumers over the internet. Considering the options presented in the question, Reuben buying a pair of shoes on Mysticshoes represents a B2C e-commerce transaction. Reuben, as a consumer, purchases a product for personal use directly from an online retailer.
Suppose you want to invest in ABC stock that does not pay any dividends. A share is trading at $100. You put $10,000 of your own money and borrow $10,000 from your broker at 9% per year to purchase a total of 200 shares. What is the rate of return on this position if the stock goes down by 30% in the following 12 months
Answer:
A loss of 69%
Explanation:
Price per share $100
Equity invested $10,000
Funds taken from broker $10,000 at an Interest rate 9.00%
Total investment $20,000
Price change 30.00% less
Margin required 30.00%
Total shares purchased from investing = 200 shares
The shares decrease in value by 30%: $20,000 * 0.30 = $6,000.
You pay interest of = $10,000 * 0.09 = $900.
The rate of return will be:
"$6,000 － $900" /"$10,000" = - 0.69 = - 69%
In Las Vegas, the cost of living index is 110, and in San Francisco, it is 170. You work in Las Vegas currently and your salary is $57,000. You are offered a promotion and pay raise of $70,000 to move to San Francisco. If you take the promotion, your __________ wage increased but your ___________ wage has decreased.
Answer:
Your nominal wage increased but your real wage has decreased.
Explanation:
Given that,
Cost of living index in Las Vegas = 110
Cost of living index in San Francisco = 170
Salary in Las Vegas = $57,000
Salary offered to work in San Francisco = $70,000
The cost of living index of the two cities indicates that the cost of living in San Francisco is higher than the cost of living in Lag Vegas.
The salary in Las Vegas is $57,000, when we are taking into consideration the effect of the cost of living, then the value of this salary in San Francisco must be:
= (Cost of living index in San Francisco ÷ Cost of living index in Las Vegas) × Salary in Las Vegas
= (170 ÷ 110) × $57,000
= 1.5454 × $57,000
= $88,090.9
Hence, if the salary offered to work in San Francisco = $70,000,
Then, this will increase the nominal salary but the real salary will not increase (i.e, decreased) because of the higher cost of living in San Francisco.
A bottleneck is an operation that has the lowest effective capacity of any operation in the process. True/False
Answer:
True
Explanation:
Yes, it is very true that a bottleneck is an operation that carries less effective capacity of any operation in the method. If its output is less than market demand then the process with the least capacity is also known as bottleneck.
So, by the above explanation we can easily judge the statement provided in the question is absolutely true and correct.
Which of the following statements is CORRECT? a. When the WACC is calculated, it should reflect the costs of new common stock, reinvested earnings, preferred stock, long-term debt, short-term bank loans if the firm normally finances with bank debt, and accounts payable if the firm normally has accounts payable on its balance sheet. b. If a firm has been suffering accounting losses that are expected to continue into the foreseeable future, and therefore its tax rate is zero, then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt. c. Since the costs of internal and external equity are related, an increase in the flotation cost required to sell a new issue of stock will increase the cost of reinvested earnings. d. An increase in a firm's tax rate will increase the component cost of debt, provided the YTM on the firm's bonds is not affected by the change in the tax rate. e. Since its stockholders are not directly responsible for paying a corporation's income taxes, corporations should focus on before-tax cash flows when calculating the WACC.
Answer: B. If a firm has been suffering accounting losses that are expected to continue into the foreseeable future, and therefore its tax rate is zero, then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.
Explanation: A firm suffering from losses due to accounting that are expected to continued in the future then the prefect stock will be less than cost of debt after tax.
The option " B* is the only correct statement among the others .
Preferred stock may have priority over common stock except in
Answer:
Voting
Explanation:
Although There are several differences between preferred and common stock. They have a main difference and the difference lies in the fact that preferred stock withdraws from the shareholders the rights to vote. But common stock gives a right to vote, and it is usually at one vote per owned share. If company is to elect a board of directors, preferred stock have no rights to vote.
A company is trying to decide whether to sell partially completed goods in their current state or incur additional costs to finish the goods and sell them as complete units. Which of the following is not relevant to the decision?
a-the selling price of the completed units
b-the costs incurred to process the units to this point
c-the selling price of the partially completed units
d-the costs that will be incurred to finish the units
b
Answer:
b-the costs incurred to process the units to this point
Explanation:
Since in the question it is given that the company want to decide whether to sell partially completed goods or should incurred extra cost in order to finished the goods and sells them as a completed unit
So there should be the decision regarding selling price for the units that are completed, the selling price for the units that are partially completed and the cost i.e to be incurred for finishing the units
Consider a 10-year bond with a coupon rate of 6 percent. If a bond with similar risk has a yield to maturity of 8 percent, estimate the bond’s fair market value. Select one: a. $1,000-$1,100 b. $900-$1,000 c. Less than $900 d. More than $1,100 g
Answer:
c. Less than $900
Explanation:
For computing the bond fair market value we used the present value formula i.e to be shown in the attachment below:
Given that,
Future value = $1,000
Rate of interest = 8%
NPER = 10 years
PMT = $1,000 × 6% = $60
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
After applying the above formula, the bond fair market value is $865.80
A firm that uses an international division structure sometimes experiences intra-organizational conflict because ________. Grupo de opciones de respuesta ) more resources and management attention tend to get channeled toward the international division than toward the domestic divisions such a structure disallows managers to coordinate resources for foreign activities under one roof the international division invariably fails to respond to cultural differences such a structure depresses the firm's ability to respond to market opportunities
Answer:
more resources and management attention tend to get channeled toward the international division than toward the domestic divisions
Explanation:
A firm that uses an international division structure sometimes experiences intra organizational conflict because MORE RESOURCES AND MANAGEMENT ATTENTION TEND TO GET CHANNELED TOWARD THE INTERNATIONAL DIVISION THAN TOWARD THE DOMESTIC DIVISIONS.
Answer:
more resources and management attention tend to get channeled toward the international division than toward the domestic divisions.
Explanation:
A firm that uses an international division structure sometimes experiences intra-organizational conflict because more resources and management attention tend to get channeled toward the international division than toward the domestic divisions in order to improve on staff competence across all boards and enhancing competition among at all divisions, making the firm achieve its target or goals.
Dunn Corporation owns 100 percent of Grey Corporation’s common stock. On January 2, 2017, Dunn sold to Grey $40,000 of machinery with a carrying amount of $30,000. Grey is depreciating the acquired machinery over a five-year remaining life by the straight-line method. The net adjustments to compute 2017 and 2018 consolidated net income would be an increase (decrease) of
Note:
A table for 2017 and 2018 income is hereby shown
Answer and Explanation:
Given:
Cost of machine = $40,000
Carrying amount = $30,000
Expected life = 5 year
Computation of Depreciation per year:
Depreciation per year = Cost of machine / Expected life
Depreciation per year = $40,000 / 5
Depreciation per year = $8,000
Computation of Income from sale:
Income from sale = Cost of machine - Carrying amount - Depreciation
Income from sale = $40,000 - $30,000 - $8,000
Income from sale = $2,000
Computation of historical Depreciation:
Historical Depreciation = Carrying amount / Expected life
Historical Depreciation = $30,000 / 5
Historical Depreciation = $6,000
Computation of Consolidated Net Income:
Consolidated Net Income = $8,000 - $6,000
Consolidated Net Income = 2,000
2017 Net income reduce by $8,000
2018 Net income increased by $2,000
Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each. In order to increase sales to 21 driveways, the contractor must lower the price of driveways to $9,500. The marginal revenue of the 21st driveway is:_________.
a. $500.
b. $199,500.
c. -$500.
d. $9,500.
Answer:
The marginal revenue of the 21st driveway is: -$500. The right answer is C.
Explanation:
In order to calculate the the marginal revenue of the 21st driveway, we have to calculate first the total revenue from 20 driveways.
Total revenue from 20 driveways = 20×$10,000= $200,000
Next, we calculate the Revenue from 21 driveways = 21×$9,500 = $199,500
Therefore, The Marginal revenue from 21th driveways = =$199,500-$200,000 =-$500
As a personal trainer at a local gym, Marie has been invited by a publisher to meet with nine other people to discuss a new concept for a health and fitness magazine. A member of the publisher's marketing staff will be at the meeting to guide the discussion and to record the participants' comments and suggestions. If Marie accepts the invitation, she will be participating in a focus group.a.trueb.false
Answer:
The correct answer is True.
Explanation:
The focus group generally has personnel who qualitatively evaluate people's behavior taking into account their opinions and attitudes towards the presentation of the new health and fitness magazine. Marie participates in a focus group considering that a marketing member will be in charge of guiding the discussion in order to generate interest in the people who attend the event.
Fall is approaching, and Angelina wants to sell the remaining summer items that remain in stock so that she can reinvest the cash generated from those sales in fresh fall merchandise. She plans to offer a discount that declines over time (for example, 30 percent off on day 1, 20 percent off on day 2, and 10 percent off on day 3). What type of discount is she planning to use?
Answer:
Angelina plans to use steadily decreasing discount.
Explanation:
Steadily decreasing discount refers to the strategy in which a retailer slowly or steadily reduces his/her discounts on a commodity rather than just moving the commodity back to its original price immediately after the sale period ends. This is an effective strategy because it makes the consumers know that the prices are likely to increase in the future and this will prompt them to make purchases today.
Therefore, in the scenario given above, Angelina hopes to make customers purchase her merchandise today by using the steadily decreasing discount strategy.
The team that is planning the annual company sales meeting has members in several oï¬ces. Theyneed to have a conversation about the agenda for the sales meeting. Which of the following willthey most likely use?A. emailB. blog postsC. a conference callD. social networkingE. texting
Answer:
C. a conference call
Explanation:
Conference call is used for conversation either within or outside a team in an organization. It connects people in different location together .
Much cost is not expended on conference call unlike physical meetings which might involve travelling longer distance.
One of the disadvantages of conference call is that conversation might not be fully rich due to the numbers of participants unlike one on one phone conversation.
Other means of having conversation within or outside an organization are through emails, text, social networking and video conferencing.
Leslie Bradley is an entrepreneur with a small business in Little Rock, Arkansas. Working with a local engineer/inventor, Leslie has developed a new cooking device that she thinks will revolutionize cooking. The device is a small oven that is portable and uses a gas injection system to cook meals in a fraction of the time taken in a normal oven. The new system creates a very high temperature and the gas jets are located 360 degrees around the food to be cooked, thus ensuring that the food is cooked equally on all sides. Leslie and the engineer applied for a patent and then immediately sought a relationship with a large manufacturer to produce and distribute the new oven. To her surprise, when she demonstrated it to the top three manufacturers, they all had the same reaction: "We are very interested in this new invention but we would like to see some consumer research that tells us what consumers think about the device." "Will they think the temperature is too high and represents a safety issue?" "Do they really think that a roast cooked in 6 minutes will taste the same as one roasted for 2 hours?" "How much, if any, will they be willing to pay for the added convenience of time savings?" Leslie sought the services of Weber Research, Inc. WRI was an established research firm in the city and they recommended that they use their mall facility in order to conduct some research that allowed consumers to use the device and taste the food cooked in the device. Leslie agreed but was concerned about the types of persons in the shopping mall. "They really won't represent our area since they will likely be mostly female and they will have higher incomes than the general population."
WRI assured Leslie that this could be overcome by using which of the following sampling methods?
A) quota sample
B) purposive sample
C) stratified sample
D) representative sample
E) systematic sample
Answer:
B) quota sample
Explanation:
Remember, Leslie was initially concerned about the types of persons in the shopping mall, who she believed would not represent the research area since they may likely be mostly female and they will have higher incomes than the general population.
However, using Quota sampling method, Weber Research, Inc. could look for consumer that are more likely to use the device and taste the food cooked in the device, this consumers would be divided into quotas or groups having similar characteristics and then a sample would of the population will be researched on.
The process begins when a customer steps into line and ends when the customer receives the receipt and leaves the store. The process steps are the activities the customer and store personnel do to complete the transaction. A_________ is a standardized set of activities that accomplish a specific task,such as processing a customer’s order.
Answer:
Business process
Explanation:
Business processis defined as a set of related and structured activities by people that involves a specific sequence that is aimed at producing a product or service.
For Ecole receiving orders, processing invoices, shipping products, and setting a marketing budget.
Business processes are fine tuned over time to increase efficiency and productivity.
Business processes are standardised per business and they make them unique to give a competitive advantage.
Answer:
A BUSINESS PROCESS is a standardized set of activities that accomplish a specific task, such as processing a customer's order.
Explanation:successfully.
Business processes are standardized activities that accomplish a specific business task. The business process steps are the activities that must be carried out by the company's employees to complete the business process. In many companies these steps are now partially or fully automated using computers (or other type of hardware) and specific software.
Business processes can occur within an organization (with internal users) or with outside customers. The basically determine how work is carried out with the organization. They should be completely documented and the employees must fully understand them so that they are performed successfully.
Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would a. rise and exports of other industries would increase. b. rise and exports of other industries would decrease. c. not change, exports of other industries would increase. d. not change, exports of other industries would decrease.
Answer:
The correct answer is b. rise and exports of other industries would decrease.
Explanation:
The import quota is a tool that countries have when limiting the physical quantity of a product that can be imported into their territories during a specific period.
Answer:
B. Rise and exports of other industries would decrease
Explanation:
If U.S. impose an import quota on beef. Sales of U.S. beef producers would rise and exports of other industries would fall.
Import quotas refers to foreign trade policies which is imposed on a goods or services by the government of a particular country in order to protect domestic production of such product by restricting foreign competition. It is used to discourage importation so that local producers can sell more.
In order to discourage importation of a product, the government of a particular country sets a particular quantity of the product to be imported, this would cause an increase in the price of imported product, thereby discouraging local consumers from buying the product. This would lead to an increase in the sales of domestic producers of such product.
If U.S impose import quota on Beef, it is to discourage importation of beef and encourage local producers of beef. If other countries could not sell more beef to U.S, then they might retaliate by deciding to impose import quota on goods imported from U.S and this would lead to a decline in the export of other industries in U.S.
A disadvantage of an LLC is that it has a Life
A company has a tool to monitor its progress. This tool analyzes the company's finances and its strategy. The executives use this tool to understand how the firm responds to shareholders, how customers view the firm, what processes to focus on to successfully use its competitive advantage, and how it can use innovation to improve its performance. What is this a description of____
A company has a tool to monitor its progress. This tool analyzes the company's finances and its strategy. The executives use this tool to understand how the firm responds to shareholders, how customers view the firm, what processes to focus on to successfully use its competitive advantage, and how it can use innovation to improve its performance. -The tool used is the Financial Ratio
Explanation:
Financial ratios are used to understand the relationships between the various items of a financial statement. The financial ratios analysis the historical data of a company and it is being used by the management to understand the internal strength and weaknesses of the company and to analyse the financial performance in the near future.the shareholders use these ratios to compare companies in the same industry.
A company has a tool to monitor its progress. This tool analyzes the company's finances and its strategy. The executives use this tool to understand how the firm responds to shareholders, how customers view the firm, what processes to focus on to successfully use its competitive advantage, and how it can use innovation to improve its performance. -The tool used is the Financial Ratio
Real estate asset managers perform certain functions that would not be expected of asset managers who deal with stock and bond portfolios. Which of the following functions would you expect both asset managers in real estate as well as stocks/bonds to perform?A) find specific assets in which the owners/client can investB) monitor asset performanceC) negotiate the acquisition price of assetsD) oversee due diligence and closing
Answer: B. Monitor asset performance.
Explanation:
A real estate manager performing function as a asset manager, the function he is expected to performed as both is "monitoring assets performance".
Just keeping track of assets as they come, is part of monitoring. Asset performance means a business ability to take operational resources, manage it and produce profitable returns. It is used typically to compare a company's performance against its competition over time.
According to Kahneman and Tversky (1984) subjective probabilities are not identical with objective probabilities. In the function they calculated to describe this relationship, which part of the curve is overweighted?
Answer:
Very low subjective probabilities
Explanation:
The prospect theory is an economics theory developed by Daniel Kahneman and Amos Tversky. It is used in a decision making process, a decision maker multiplies the value of each
outcome by its decision weight, just as expected utility maximizers multiply utility by subjective probability. In differentiating subjective probabilities with objective probabilities, the very low subjective probabilities are overweighted.
Direct Materials Purchases Budget Pasadena Candle Inc. budgeted production of 785,000 candles for January. Wax is required to produce a candle. Assume 10 ounces of wax is required for each candle. The estimated January 1 wax inventory is 16,000 pounds. The desired January 31 wax inventory is 12,500 pounds. If candle wax costs $1.24 per pound, determine the direct materials purchases budget for January. (One pound
Answer:
$604,035
Explanation:
The computation of the direct materials purchases budget is shown below:-
Total Wax Required 490,625 Pounds
(785,000 × 10 ÷ 16)
Add: Ending Inventory 125,00 Pounds
Total Units Available 503125 Pounds
Less: Beginning Inventory 16,000 Pounds
Total Pounds to be Purchased 487,125 Pounds
Unit Price $1.24 per Pounds
Total Direct Materials Purchased $604,035
(487,125 × $1.24)
Periodically reviewing controls to verify that they still function as intended, upgrading controls when new requirements are discovered, ensuring that changes to systems do not adversely affect the controls, and ensuring new threats or vulnerabilities have not become known are all ________ tasks.
Answer:
B. maintenance
Explanation:
Based on the scenario being described within the question it can be said that these are all known as maintenance tasks. These are different types of tasks that all focus on making sure that everything is in good condition and is working as intended. This is done through a series of functional checks, servicing, repairing or replacing of necessary devices, equipment, machinery, and/or building infrastructure if needed.
Which of the following statements is true of effective business communication? Group of answer choices The communication is most effective when a speaker is able to extensively use jargon in his speech. The communication is most effective when a speaker is able to extensively use special effects and sounds in the presentation. The speaker should seek and understand feedback from the speaker's audience. The communication should be static and one way.
Answer:
The speaker should seek and understand feedback from the speaker's audience
Explanation:
Business communication is defined as the exchange of information among people in an organization that seek to promote the aims, goals and objectives of the organization . It also refers to how information is shared to consumers in order to promote its products for profit increase.
Business communication is said to be effective when the speaker seek and understand feedback from it's audience. This helps management to effectively discharge their duties in the organization.
Effective communication is that which must be complete, correct and factual. It must provide clarity where necessary. It must be concise and there must be an element of creativity .
A person who offers a facilitation payment in order to secure a contract that will keep her company from going bankrupt and laying off hundreds of employees may be a(n) ________ because she is trying to secure the greatest good for the greatest number of people.
Answer:
utilitarian.
Explanation:
A utilitarian is a person who takes actions that maintains or increases the well-being or happiness of a great number of persons.
In the above question, The person is trying to ensure that employees are not laid off and also the company doesn't go bankrupt. This shows that the individual is trying to ensure the happiness of employees as well as their well-being and that of the company.
Cheers.
Mayo Corp. has estimated that total depreciation expense for the year ending December 31, 2021 will amount to $600,000, and that 2021 year-end bonuses to employees will total $1,200,000. In Mayo's interim income statement for the six months ended June 30, 2021, what is the total amount of expense relating to these two items that should be reported?
Answer:
$900,000
Explanation:
Depreciation for the year $600,000
Employee Bonuses $1,200,000
Total expense for the year $1,800,000
Expense to be reported in interim income statement 1,800,000/2=$900,000
Dane works as a sales representative for the Better Butter Company. He is about to meet with his manager to review his progress toward meeting the sales objectives they agreed to at the beginning of the year. Dane likes the fact that managers at Better Butter listen to their subordinates' ideas and get everyone involved in setting goals and objectives. Dane's experience suggests that Better Butter is utilizing:
A. scientific management.
B.management by objectives (MBO).
C. the program evaluation and review technique (PERT).
D. programmed management.
Answer:
Management by objectives(MBO).
Explanation:
Management by objectives is a management model whose aim is to improve the performance of an organization by directing eack worker on things that should be done in the workplace. It helps the employees to understand their various duties and roles in the organization as it clearly defines the responsibility of each worker.
Management by objectives ensure proper communication between each and every one of the employees in the organization thereby leading to commited and inspired workers who are willing to work together for the success and growth of the company.
Answer: The answer is B.
Explanation: Management by objectives (MBO) is a strategic management model or a personnel management technique which aims to improve the performance of an organization by clearly outlining the objectives which are agreed to by both the management and the employees.
According to this theory, for each member of the organization to have a say in goal setting and action to be taken will encourage participation and commitment among employees, as well as aligning with objectives stated by the organization.
An entrepreneur started a small consulting business to provide training on multi-culturalcommunication to large corporations, educating managers on how to communicate with people whohave a different ethnic background than their own. In his conversations with customers, he learnsthere is a need for training on socio-economic issues as well. He develops a training class forteaching managers the differences in communication and perception across socioeconomicsituations that he can provide to multiple customers. This is an example of strategies to improve:customer responsiveness and innovation
Answer:
b.
Explanation:
Based on the scenario being described within the question it can be said that this is an example of strategies to improve customer responsiveness and innovation. Which is what the training class is providing by teaching the managers these skills they will be able to better communicate with customers is a wide range of circumstances, thus increasing customer responsiveness.
The law of large numbers says that when many people are insured, the probability distribution of the losses will assume a normal probability distribution, a distribution that complicates pricing in life insurance. allows accurate predictions. hinders accurate predictions. is difficult to work with.
Answer:
allows accurate predictions.
Explanation:
The law of large numbers states that the larger the amount of policy holders, the probability distribution of the number of claims (losses for the insurance company) will be shaped like a normal distribution. This allows the companies to make more accurate predictions about the future number of claims.
In statistics, the law of large numbers states that as the sample size increases, the mean will be much closer to the real mean of the total population.
Final answer:
The law of large numbers helps insurers make accurate predictions about losses, thereby aiding in the determination of fair premiums. It ensures that as the number of insured individuals increases, the sample mean of losses will approach the population mean, following a normal distribution.
Explanation:
The law of large numbers is a principle that is fundamental to the field of insurance and risk management. Under this law, as the number of insured individuals grows, the actual losses are more likely to average out closer to the expected losses.
This law is essential for the pricing of insurance policies and allows for accurate predictions when setting premiums. Due to large sample sizes, insurers can rely on the law of large numbers to predict and manage the risk associated with their policies effectively.
This prediction is further supported by the central limit theorem, which states that as the sample size (in this case, the number of insured individuals) increases, the sample means will follow a normal distribution, with a smaller standard deviation, indicating that the sample mean will be close to the population mean (μ).
While other factors such as investment income, administrative costs, and varying risk groups can add complexity, a fundamental law of insurance must prevail: over time, the average person's payments into insurance must cover the average person's claims, the costs of running the insurance company, and allow room for profits. In the context of life insurance, the application of the law of large numbers and its subsequent result in a normal distribution of losses helps actuaries and insurers in determining actuarially fair premiums, adhering to the fundamental law of insurance.