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Question:

The investment needs of property and casualty insurers are characterized by a:

A short-term time horizon and low risk tolerance.
explanation

Property and casualty insurers typically have a short-term rime horizon, since claims are expected in the near term, and low risk tolerance

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Related Questions

Consider the following statements:
Statement 1: A risk‐averse investor can attain a better risk-return tradeoff by investing a portion of his portfolio in Asset A, which is more risky than his current portfolio, only if the correlation between his current portfolio and Asset A is negative.
Statement 2: A more risk‐averse investor will have a steeper indifference curve than a less risk‐averse investor.
Which of the following is most likely?

Only Statement 2 is correct.

•A risk‐averse investor can attain a better risk‐return tradeoff by investing a portion of his portfolio is a more risky asset as long as the correlation between his current portfolio and the asset is less than 1.
• Statement 2 is correct.

In which step of the portfolio management process does an investment manager rebalance the portfolio to its target asset allocation percentages?

Feedback step.

The three major steps in the portfolio management process are planning, execution, and feedback. Rebalancing the portfolio to its desired asset allocation is part of the feedback step.

A primary reason for developing a strategic asset allocation is to:

determine asset classes offering unique risk and return profiles with low correlations to one another.

Asset classes add value to a portfolio when they have unique risk/return profiles, and they have relatively low or negative correlations to one another. One of the benefits of asset allocation and diversification is to minimize unsystematic risk. Rebalancing policies are often established in the IPS, but establishing the strategic asset allocation will not necessarily prevent overweighting or underweighting due to market changes or tactical asset allocations.

Which of the following most likely have the shortest time horizon for their investment portfolios?

Banks

Pension plans and foundations typically have very long time horizons, whereas banks typically have shorter investment horizons

Which of the following pairs refer to the same type of risk?

Total risk and the variance of returns.

This stock is most likely:

Undervalued.

1212Expected rate of return =
Required rate of return = 0.05 + 0.8 (0.08) = 11.4%
Because the expected rate of return is greater than the required rate of return, the stock is undervalued.

A stock has a beta of 0.9 and an estimated return of 10%. The risk- free rate is 7%, and the expected return on the market is 11%. According to the CAPM, this stock:

is overvalued.

E(R) = 7% + 0.9(11% - 7%) = 10.6%. Because the expected return of 10% is less than the required return of 10.6%, the security is overvalued.