The Waverly Brush Company issued 4,000 shares of common stock worth
400 B.
40 D. $50 User: 13. All insurance is based on a principle called A. division of risk. B. investment premiums. C. cash value coverage. D. premium earnings.
The Correct Answer and Explanation is:
Question 1:
The Waverly Brush Company issued 4,000 shares of common stock worth:
Correct Answer: $50
Explanation:
To find the value per share of the common stock, you need to consider the total value of the shares and the number of shares issued. Based on typical financial practices, when a company issues shares, they are assigned a value per share, often known as the par value or market value.
From the provided options, the correct interpretation is that each share is worth $50. If the company issued 4,000 shares at $50 each, the total value would be:
4,000 shares × $50 = $200,000
Therefore, the answer $50 refers to the value of each individual share, not the total combined value of all the shares.
Question 2:
All insurance is based on a principle called:
Correct Answer: A. division of risk
Explanation:
The fundamental principle behind all types of insurance is the division of risk, sometimes referred to as risk pooling or risk sharing. This principle allows individuals or organizations to transfer the financial burden of a potential loss to a larger group.
In practical terms, insurance works by collecting premiums from many people. These funds are then used to cover the losses of those few individuals who experience an insured event, such as an accident, illness, or property damage. Because not everyone suffers a loss at the same time, the cost is spread across the entire pool of policyholders.
This system reduces the financial uncertainty for individuals and businesses, making it easier to manage unexpected events. Other terms like “investment premiums,” “cash value coverage,” and “premium earnings” are related to specific types of insurance or financial strategies but do not describe the core principle behind insurance as a whole.
Thus, division of risk is the correct foundation upon which all insurance operates.
