CPCU 500 - Foundations of Risk Management and Insurance UPDATED Exam Questions and CORRECT Answers
3 views 0 purchase
Course
CPCU 500
Institution
CPCU 500
CPCU 500 - Foundations of Risk
Management and Insurance UPDATED
Exam Questions and CORRECT Answers
CHAPTER 1 - Correct Answer- ...
What are the two elements of risk? - Correct Answer- -Uncertainty of outcome - Time of the
outcome and type of outcome are uncertain
-possibility of a negative...
CPCU 500 - Foundations of Risk
Management and Insurance UPDATED
Exam Questions and CORRECT Answers
CHAPTER 1 - Correct Answer- ...
What are the two elements of risk? - Correct Answer- -Uncertainty of outcome - Time of the
outcome and type of outcome are uncertain
-possibility of a negative outcome - at least 1 outcome is negative
What is the difference between probability and possibility? - Correct Answer- Possibility - an
outcome or event may or may not occur. It does not quantify the risk, only verifies the risk is
there
Probability - the likelihood than an outcome will occur, quantifies the risk. It is measurable
and has value between zero and one
How does probability help an organizations risk management exposure? - Correct Answer- -
by understanding the probability of an exposure, an organization can focus its risk
management efforts to avoid it.
-helps organization decided what projects and activities to undertake
How does classifying a risk help an organizations risk management process? - Correct
Answer- -can help with assessing risk cause many risks in the same classification have
similar attributes
-helps manage risks
-helps administrative function of RM by helping to ensure the risks in same class are less
likely to be overlooked
-Compare pure risk with speculative risk
-why is it important to distinguish between the 2 what making risk management proceduces -
Correct Answer- pure risk - change of loss or no loss but no gain
speculative risk - involves a chance of gain
, type of SR includes: price risk and credit risk (financial investments involve a distinct set of
speculative risks)
its important when making RM decisions cause the 2 types must often be managed different.
*most insurance policies are not designed to handle speculative risks*
*insurable risks are generally classified as pure, objective, and diversafiable*
- How does subjective and objective risk differ? - Correct Answer- subjective risk - perceived
amount of risk based on individuals or organizations opinion
objective risk - measurable variation in uncertain outcomes based on facts and data
where they differ (see page 1.8):
1. Familiarity and control
2. consequences over likelihood
3. Risk Awareness
-Contracts diversifiable and nondiversifiable risk? - Correct Answer- diversifiable risk - is not
highly correlated and can be managed through diversification
non-d risk - is correlated, losses and gains occur together (type: systemic risk - potential for a
major disruption in the function of an entire market or financial system
- Describe the quadrants of risk - Correct Answer- way of categorizing risk is putting them in
quadrants:
-hazard risk - property, liability, and personnel loss, generally the subject of insurance
-operational risks - fall outside hazard cat, arise from people or failure in process, system, or
control, including info tech
-financial risks - effect of market forces on financial assets or liabilities and include market
risk, credit risk, liquidity risk and price risk
-strategic risks - arise from trends in the economy and society, including changes in econ,
political and competitive environments, as well as from demographic shirts
*see graph on 1.10*
What are the 3 components to constitute the financial consequence of risk faced by
individuals or organizations? - Correct Answer- - expected cost of losses or gains
- expenditures on RM
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller MGRADES. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.49. You're not tied to anything after your purchase.
