2024 ERM Final Exam Questions & Answers 100% CORRECT
5 views 0 purchase
Course
2024 ERM
Institution
2024 ERM
2024 ERM Final Exam Questions & Answers 100% CORRECT
The relationship between loss exposure and residual uncertainty is - ANSWERSthe loss is factored into the exposure
What are firms trying to do with risk management - ANSWERSminimize cost of risk and mazimize shareholder wealth
What is ...
2024 ERM Final Exam Questions &
Answers 100% CORRECT
The relationship between loss exposure and residual uncertainty is - ANSWERSthe loss is factored into
the exposure
What are firms trying to do with risk management - ANSWERSminimize cost of risk and mazimize
shareholder wealth
What is pure risk - ANSWERSChance of loss or no loss
What is speculative risk - ANSWERSChance of gain and loss or no loss
There is a very large market for derivatives - ANSWERS
Derivative contract - ANSWERSPayoff is contingent upon from the value of another asset
Segrigation of assets reduces - ANSWERSindirect loss
cost exceeds benefit - ANSWERSavoidance
loss prevention - ANSWERSreduces expected loss by reducing loss frequency.
ex. put a fence around a pool, gate up to property, warnings on products.
Loss avoidance - ANSWERSdo not engage in risky activity or produce product
loss reduction - ANSWERSreduces expected losses by reducing the loss severity
(after it occurs)
, ex. dominos pizza delivery in 30 minutes causing accidents
The optimal level of loss control occurs when - ANSWERSyou segregate exposure units
what are consequences of pushing for zero risk - ANSWERSdecreased quality of life. its also impossible
loss sensitive contract - ANSWERSultimate premium based on losses during the policy period. insured
retains more risk than the insurers. insurer pays claims, eventually paid back by insured-insurer "loan" to
insured. premium is based on insurers past lost experience.
two components of opportunity cost of capital - ANSWERSRisk free rate & risk premium
risk free rate - ANSWERScompensates investors for time value of money equal to 30 day t-bill or other US
government bond.
risk premium - ANSWERScompensates investors for incurring risk or uncertainty of cash flows
the greater the risk, the greater the risk premium, the greater the discount rate - ANSWERS
risk premium has two components - ANSWERSnondiversifiable and diversifiable risk
Nondiversifiable risk - ANSWERSfaced by all firms and the risk cannot be diversified
diversifiable risk - ANSWERSfirm specific and can be reduced by diversification
Reducing diversifiable risk does not reduce risk for diversified shareholders but it can increase expected
cashflows by - ANSWERSreducing the cost of obtaining services
avoiding costly external financing
improving contractual terms with other claimants
reducing expected cash payments
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 Bensuda. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.
