FINC 3200 Exam 1- Colquitt Auburn University All Possible Questions and Answers with complete solution

Risk - uncertainty concerning the occurrence of a loss loss exposure - any situation or circumstance in which a loss is possible objective risk - defined as the relative variation of actual loss from expected loss subjective risk - defined as uncertainty based on a person's mental condition or state of mind Chance of loss - the probability that an event will occur Objective probability - refers to the long run relative frequency of an event assuming an infinite number of observations and no change in the underlying conditions subjective probability - an individual's personal estimate of the chance of loss Peril - the actual cause of a loss hazard - a condition that increases the chance of loss physical hazard - a physical condition that increases the chance of loss moral hazard - dishonesty or character defects in an individual that increase the chance of loss (i.e. faking accidents, inflating claim amounts) morale/attitudinal hazard - carelessness or indifference towards a loss, which increases frequency or severity of a losspure risk - situation where there are only possibilities of loss or no loss speculative risk - a situation where profit or loss is possible diversifiable risk - risk that only affects small groups of individuals (also known as non-systematic or particular risk) nondiversifiable risk - affects the entire economy and/or large groups of people enterprise risk - encompasses all major risks faced by a business firm personal risks - risks that directly affect an individual or family. they involve the possibility of loss or reduction in income, extra expenses or depletion of assets, due to; 1)premature death of family head 2)Insufficient income during retirement 3)poor health 4)involuntary unemployment property risk - involves the possibility of losses associated with the destruction or theft of property direct loss - a financial loss that results from the physical damage, destruction, or theft of property, such as fire damage to a home indirect/consequential loss - results indirectly from the occurrence of a direct physical damage or theft loss, such as additional living expenses after a fire liability risk - involve the possibility of being held liable for bodily injury or property damage to someone else, and there is no maximum upper limit with respect to the amount of lossMajor commercial risks - damage to commercial property, suits for defective products,loss of business income burden of risk on society - -having to maintain large emergency funds to pay for unexpected loss -discourage innovation due to liability risk -causes of worry and fear