True or False - Human Capital

CFA Level III
#1
  1. There is a positive relationship between Financial wealth and insurance needs 2) There is a positive relationship between Human capital volatility and insurance needs 3) There is a positive relationship between Risk Aversion and insurance needs 4) There is a positive relationship between probability of death and insurance needs
#2
  1. False 2. False 3. True 4. True
#3
  1. F 2) F 3) T 4) T
#4

^ same for me…

#5

no no yes yes

#6

hmm i have F T T T

#7

F F T T

#8

False True True True

#9

False True True True

#10
  1. There is a positive relationship between Financial wealth and insurance needs False 2) There is a positive relationship between Human capital volatility and insurance needs False 3) There is a positive relationship between Risk Aversion and insurance needs True 4) There is a positive relationship between probability of death and insurance needs True
#11

True True False False :slight_smile:

#12
  1. false (hi FC --> less reliance on HC --> less need for insurance) 2) false (hi vol --> hi discount rate for HC --> low value of HC --> less need for insurance) 3) true 4) true (pure guess)
#13

mofo, you have answers us for us?

#14

ilvino Wrote: ------------------------------------------------------- > mofo, you have answers us for us? Yeah. F F T T ; )

#15
  1. There is a positive relationship between Financial wealth and insurance needs False - the higher the financial wealth the less need for insurance. Also related to age i.e. human capital - the less human capital the lower the insurance needs, since financial capital is high at this point 2) There is a positive relationship between Human capital volatility and insurance needs False - If your Human capital is bond like you will invest more in equities, hence you have less need for insurance as the investment portfolio is expected to do well. 3) There is a positive relationship between Risk Aversion and insurance needs True 4) There is a positive relationship between probability of death and insurance needs True
#16

#2: CFAI Book p243 v2 “clear link between demand for life insurance and the uncertainty of human capital” couldn’t one argue that increased volatility of human capital would mean that there is an increased demand for life insurance?

#17

this stuff is so vague. I remember the cfa reading said that higher volatility of HC meant it has higher uncertainty, and is therefore worth less because it has a higher discount rate applied to it. So with less value of HC, you need less insurance it’s all jibberish to me, but just churn it out…

#18

i’m going with: F F T T i think vol leads to higher discount of hc thereby lowering hc and demand for life insurance

#19
  1. There is a positive relationship between bequest desire and insurance needs
#20

null&nuller Wrote: ------------------------------------------------------- > this stuff is so vague. I remember the cfa reading > said that higher volatility of HC meant it has > higher uncertainty, and is therefore worth less > because it has a higher discount rate applied to > it. So with less value of HC, you need less > insurance > > it’s all jibberish to me, but just churn it > out… Life insurance is a replacement for the PV of HC, so a higher volatility would dictate a higher discount rate, thus a lower PV of HC and a lower need for life insurance.