Incomplete question
The missing part (which is the beginning)
The nation of Newbie is establishing its monetary system and is designing its currency. The first proposal is to issue the Newbie Nugget (their new currency) in only 3 denominations of paper bills (100, 500 and 1000 Newbie bills) but no coinage.
Answer:
It is not easily divisible
Explanation:
Medium of exchange is any financial instrument of a standard value that is used to facilitate the exchange of goods and services .
In addition , to be qualified for a medium of exchange , the instrument must be generally acceptable , portable , divisible ,low cost of preservation and recognizable
Divisibility value of a medium of exchange is provided when it comes in lower denominations and coins
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
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 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.
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.
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.
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.
Waterway Industries is planning to sell 500 boxes of ceramic tile, with production estimated at 870 boxes during May. Each box of tile requires 44 pounds of clay mix and a 0.50 hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $10 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Waterway has 4100 pounds of clay mix in beginning inventory and wants to have 4900 pounds in ending inventory. What is the total amount to be budgeted for manufacturing overhead for the month?
Answer:
$4785
Explanation:
Estimated Production budget - 870 boxes
Hour /unit = 0.5
Total time required = (870*0.5)435 hr
Labor rate =$10/hr
Budgeted manufacturing overhead = 435 *10 *110%
=$4785
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
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 .
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 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.
Firms continue to produce (illegally) counterfeit computer software and documentation. Some of the illegal copies are Microsoft products, though Microsoft still has a large share of the market for its products. The presence of enforced copyright protection laws indicates that the market for Microsoft software cannot be considered a competitive market because:
Answer:
There are significant barriers to entry
Explanation:
Base on the scenario been described in the question, other firms that were producing counterfeit software are not going to make the market of Microsoft competitive because, the products are illegally produced and Microsoft has enforced the presence copyright protection laws serves a barrier to firms producing counterfeit software.
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.
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%
When radio is used as an advertising medium, which of the following statements is usually true. a.Local customers embrace radio advertising. b.Radio advertising is usually very expensive. c.Segmentation strategies cannot be applied. d.The target audience is attentive to radio advertising. e.A low audience selectivity is provided by radio advertising.
Answer:
a. Local customers embrace radio advertising.
Explanation:
Advertising is any paid form of non personal presentation and promotion of goods and services which is aimed at promoting immediate sales.
There are several forms of advertisements which are radio, television, news papers and magazines, direct mails, fairs and exhibition, window display, outdoor advertising etc.
Radio advertising is one of the important forms of advertising because it covers wider range and all listeners. Local customers also embrace radio advertisement because they might not have immediate access to other forms like newspaper and magazines.
However, one of the disadvantages of radio advertising is high advertising cost. The messages are also very short and one could barely hear those messages atimes.
Susan is a partner of Andrusian Consulting, a consulting partnership. Susan agrees with Mimms Company that Andrusian will provide management consulting services for $75,000 to Mimms, if Mimms agrees to pay Susan $5,000 personally. What fiduciary duty will Susan breach, if Mimms pays her $5,000?
If Mimms pays Susan $5,000 personally, Susan would breach her fiduciary duty of loyalty to Andrusian Consulting.
Explanation:If Mimms pays Susan $5,000 personally, Susan would breach her fiduciary duty of loyalty to Andrusian Consulting. As a partner of Andrusian, Susan has a legal duty to act in the best interest of the partnership and prioritize the partnership's interests over her personal interests.
By accepting payment from Mimms personally, Susan is putting her personal financial gain ahead of the partnership's financial interests. This behavior violates her duty of loyalty, which requires partners to act in good faith and avoid conflicts of interest.
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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.
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client wants to know what will happen to gasoline demand if it increases gasoline prices by one cent higher than its nearest competitors. One of the members of your consulting team, Debbie, shares that one time in college she stopped buying gasoline from a service station that was one cent more expensive.
Based on this story, should you conclude that demand will fall to zero if the client raises gas prices by one cent?
Answer:
No, Debbie's story is an argument by anecdote, and it can lead to
wrong conclusions.
Explanation:
An argument by anecdote is when a point is proven with a story. It can be a very compelling argument, and this is because people usually like the stories about other people more than they like facts.
In general, the anecdotal argument will relate to the subject matter that is being discussed. However, anecdotal evidence is unreliable because it can be unscientific or pseudoscientific due to the fact that various forms of cognitive bias may affect the collection or presentation of evidence.
As we can see in the scenario given above, Debbie's argument is unreliable because it is her personal experience and not the collective experience of all the consumers when the price increased by one cent. Also, no form of survey or research was carried out, therefore Debbie's argument is not scientific.
Q 7.25: The corporate officers at KLM Distributors require the head of the information services department to attend monthly conferences related to emerging technology and potential for fraud. Which aspect of internal control is KLM addressing?
Answer:
The correct answer is: risk assessment.
Explanation:
Risk assessment is tool companies use at the moment of gathering information about potential risks that can impact the company's operations and how to mitigate them in case they appear. It is a continuous process a firm develops along with risk management which is in charge of creating the strategies that would be implemented at the moment of dealing with risks.
The VP of Manufacturing at Roshanak Incorporated wants to buy a new die-cast machine for production. The die-cast machine is expected to cost around $1,000,000. Which document will most likely be used to solicit bids from suppliers?A) RFPB) eVoiceC) RFJD) RFB
Answer: (A) RFP
Explanation:
The RFP is stand for the Request for proposal and it is one of the type of business related document that is used by various types of organizations and the companies for the purpose of outlining the actual needs for the given project.
According to the given question, the RFP is the document that is used to solicit bids from the supplier as it it sent to the prospective suppliers for the specific competitive bids and the best bid is basically selected by the committee of capital investors.
After the selection process, the best supplier gives all the asset and the regular expenditure process of the specific organization. Therefore, Option (A) is correct answer.
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 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.
In estimating the total value of supplies on repair trucks, Baker Company draws random samples from two equal-sized strata of trucks. The mean value of the inventory stored on the larger trucks (stratum 1) was computed at $1,500, with a standard deviation of $250. On the smaller trucks (stratum 2), the mean value of inventory was computed as $500, with a standard deviation of $45. If Baker had drawn an unstratified sample from the entire population of trucks, the expected mean value of inventory per truck would be $1,000, and the expected standard deviation would be _________.
Answer:
Greater than 250
Explanation:
Given that standard deviation is a statistical tool used to express or measure the amount of variation that exist in a set of values or within a given population, the combination of two diverse population as it was done in this scenario will lead to or rather likely result in a standard deviation number that is larger than either of the separate strata. Thus, given that the standard deviation of the two state were 250 and 45, the expected standard deviation would be greater than the highest which is 250.
And investment property produces 175,150 annual gross income if the annual expenses are 24,600 and the appraiser estimates the value of the building using 5.25% rate of return what is the estimated value
Answer:
$962,857
Explanation:
The Dividend Valuation Model with no growth increment can be used here to calculate the value of the building and is given as under:
Po = D / r
Here
Po is value of building
D is Net Annual Cash flow
r is the rate of return
By putting the values we have:
Po = (75,150 - 24600) / 5.25% = $962,857
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.
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
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.
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.
In a tax-free business combination,
A. the income tax basis for acquired assets and liabilities is adjusted to current fair value.
B. any goodwill created by the combination may be amortized in calculating taxable income.
C. the subsidiary's assets and liabilities are assigned an income tax basis of zero dollars, so that they will have no future income tax consequences.
D. any goodwill created by the combination must be deducted in total in calculating taxable income.
E. the subsidiary's cost basis for assets are retained for income tax calculations.
Answer:
The answer here would be option E. given in the answer choices or the subsidiary's cost basis for assets are retained for income tax calculations.Explanation:
A subsidiary can be identified as an autonomous and independent business organization which operates under the parent or the original company.The parent company or the original organization typically owns 50% or more stock or share in business and if it has absolute or full control over the subsidiary company, then it is commonly known as Wholly Owned Subsidiary.To obtain the benefits of the tax-free business combination under a subsidiary based business structure or planning, the estimation of the costs and expenses of the business assets officially listed by the subsidiary in its respective accounting books have to be legitimately reported or filed under income tax calculations.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.