CPCU 500 3RD EDITION FINAL PRACTICE EXAM 1 STUDY
MATERIALS QUESTION AND ANSWERS (VERIFIED ANSWERS)
1. **What does "possibility" mean in terms of risk?**
- a) An outcome may or may not occur.
- b) An outcome will certainly occur.
- c) An outcome is impossible.
- d) An outcome is guaranteed to happen.
- **Answer:** a) An outcome may or may not occur.
2. **What is a correct statement about subjective and objective risk?**
- a) Subjective risk cannot exist if objective risk does not.
- b) Objective risk is always less than subjective risk.
- c) Subjective risk can exist even when objective risk does not.
- d) Objective risk is a subset of subjective risk.
- **Answer:** c) Subjective risk can exist even when objective risk does not.
3. **What does correlation mean in risk management?**
- a) Correlation increases risk while uncorrelated risks reduce risk.
- b) Correlation reduces risk while uncorrelated risks increase risk.
- c) Correlation has no effect on risk.
- d) Correlation makes risks predictable.
- **Answer:** a) Correlation increases risk while uncorrelated risks reduce risk.
4. **What is called when data from sensors is used to respond immediately to hazards?**
- a) Historical risk management
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- b) Reactive risk management
- c) Real-time risk management
- d) Predictive risk management
- **Answer:** c) Real-time risk management.
5. **What is the total cost of risk for Delmond Manufacturing's new facility?**
- a) $66.5 million
- b) $11.5 million
- c) $70.5 million
- d) $60.0 million
- **Answer:** b) $11.5 million
6. **Why must an organization meet the standard of care it owes to others?**
- a) To increase profits
- b) To satisfy legal obligations
- c) To improve market value
- d) To enhance employee satisfaction
- **Answer:** b) To satisfy legal obligations.
7. **Which is one of the four steps in revising a risk management program?**
- a) Implementing new policies
- b) Comparing actual results with performance standards
- c) Training new employees
- d) Creating new insurance policies
- **Answer:** b) Comparing actual results with performance standards.
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8. **How does property insurance protect a secured lender?**
- a) By covering legal fees
- b) By naming the lender on the owner's policy
- c) By providing additional coverage options
- d) By lowering insurance premiums
- **Answer:** b) By naming the lender on the owner's policy.
9. **What is a peril in property insurance?**
- a) The insurance policy’s term
- b) The financial value of the property
- c) The actual cause of damage, like fire or theft
- d) The insurer’s reputation
- **Answer:** c) The actual cause of damage, like fire or theft.
10. **What type of liability exposure does a contractor face if a building feature collapses after using
substandard materials?**
- a) Professional liability exposure
- b) Completed operations liability exposure
- c) Contractual liability exposure
- d) General liability exposure
- **Answer:** b) Completed operations liability exposure.
11. **What happens to Josephine's business if she dies or retires?**
- a) The business continues under new management
- b) The business is sold to a new owner
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