QUESTION 29 The manager of a large retail chain has noticed that cash flow generated by products A, B and Care erratic over time. All products are perishable food items with shelf lives of no more than five days. She is not sure what is causing the fluctuations. There is a debate in the company about focusing solely on the product with the highest expected cash flow and climinating those products with lower expected cash flow. One person at the company is arguing for keeping all three products on the shelves in the following mix; 34% product A, 32% product B and 32% product C. Another is manager is arguing for eliminating products Band C. If cash low in the part of the store falls helow $1,500 per month the store will default on its bank loans. The store should diversify across products A, B and C in the 34%, 32%, 32% ratios proposed rather than stock on the product with the highest expected cash flow. Cash Cash Cash Flow Flow Flow month product A product B product C 1 $685.00 $3,135.00 $2,328.00 2 $3,747.00 $1,637.00 $1,159.00 3 $4,106.00 $2,782.00 $1,316.00 4 $3,905.00 $2,476.00 $1,263.00 5 $543.00 $1,538.00 $1,117.00 6 $1,531.00 $2,713.00 $2,436.00 7 $3,162.00 $3,206.00 $1,955.00 8 $4,191.00 $655.00 $1,428.00 9 $3,256.00 $2,296.00 $1,644.00 10 $1,955.00 $3,031.00 $2,028.00 11 $2,077.00 $1,730.00 $2,254.00 12 $1,413.00 $1,902.00 $1,896.00 True O False QUESTION 30 An insurance company that sells earthquake insurance in an area where earthquakes are possible has subjected itself to the risk of insolvency if a severe earthquake occurs. An insurer can safely sell earthquake insurance in this area if it shifts the risk of catastrophic loss to another insurer. The shifting of insured risk from one insurer to another insurer is called reinsurance O coinsurance O casualty insurance. O underwriting