Flashcard Set Preview
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| 1 |
Always offset the risk of the human capital with the risk of the financial capital and minimize
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the correlation of the human and financial capital.
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| 2 |
If the human capital is equity-like then
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allocate more of the financial
portfolio to fixed income with less demand to life insurance.
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| 3 |
If the human capital is bond-like then
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allocate more of the financial
portfolio to equities with increased demand for life insurance.
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| 4 |
Financial capital is based on
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an expected savings rate and an expected return on capital.
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| 5 |
Attaining the expected retirement portfolio is subject to
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savings risk, earnings risk, and financial market risk.
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| 6 |
When the investor first enters the accumulation phase of their life-cycle, human capital is...
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at its highest and financial capital at its lowest.
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| 7 |
At that time the allocation to risky assets depends on
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the nature of the investor’s human capital.
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| 8 |
For most individuals entering the accumulation phase their human
capital is more equity-like...
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should be
allocated more heavily toward low risk investments.
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| 9 |
For some, the nature of human capital is bond-like, permitting
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investment in riskier financial assets.
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| 10 |
As the investor ages, financial capital increases while
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human capital decreases.
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| 11 |
If the investor is sufficiently successful, accumulated financial wealth grows to the point...
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is no longer needed as a hedge against mortality risk.
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| 12 |
The strength of the bequest desire affects the demand for
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life insurance and the utility the investor receives from leaving a bequest.
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| 13 |
Generally, the greater the bequest desire, the more likely the individual is to
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save adequately during the accumulation phase.
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| 14 |
The proportion of risky assets in the individual’s financial portfolio is inversely related...
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risk aversion; the greater the aversion to risk the smaller the allocation to risky assets.
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| 15 |
The individual’s demand for life insurance, however, is positively related to
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risk aversion.
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| 16 |
The more risk averse the individual, the greater the demand for
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life insurance.
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