RMIN 4000 Exam Questions and Answers 100%
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Risk - (correct answer) -Uncertainty concerning the occurrence of a loss
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Loss exposure - (correct answer) -any situation or circumstance in which a loss might occur (regardless
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of if it happens or not)
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- ex: When we think about if we might get sick.. my body is the exposure. If I have a business and 10
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buildings.. My buildings are exposures.
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Objective risk - (correct answer) -relative variation of actual loss from expected loss.
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Law of large numbers - (correct answer) -as the # of exposures increases the more closely the actual
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loss will get to the expected.
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Pure risk - (correct answer) -there's no up-side to the risk (nothing good comes from it), chance of loss
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or chance of no loss
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Speculative risk - (correct answer) -There is a chance for a win or a gain, you're creating a risk.
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Ex: golden balls (split or steal) or gambling or buying a house - when we go to sell it, there could be a
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gain or a sell.
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Subjective risk - (correct answer) -uncertainity based on a person's mental condition or state of mind.
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How we feel about the loss.
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Ex:$500 is different for a poor person and a rich person
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- sister's afraid of water and atkinson is afraid of ziplining
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- the risks are the same, but affects them differently (different way of handling it)
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Chance of loss - (correct answer) -the probability that an event will occur
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Objective probability - (correct answer) -the long-run relative frequency of an event based on the
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assumptions of an infinite # of observations and no change in underlying conditions
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Subjective probability - (correct answer) -the individual's personal estimate of the chance of loss.
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, Ex: sending annthrax in the mail.
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- this cost companies a lot of money, when in reality only 5 letters were actually sent with annthrax in
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them. - so this probably wasn't a huge risk, but it was in light of 9/11
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Risk Averse - (correct answer) -Avoid Risk if and when possible. Will pay extra to remove risk from a
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set of outcomes.
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Risk is scary io io
Risk Seeker / Taker - (correct answer) -Enjoys risk. Will "gamble" on a big payout and not take many
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precautions (would not pay anywhere close to expected loss) to avoid risk.
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Risk Tolerant / Risk Neutral - (correct answer) -- Risk is just right. Will evaluate risk and will strive to
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"pay" no more or less than the expected loss to avoid the risk.
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- The value of risky situation is the expected loss
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Peril - (correct answer) -the cause of loss
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Hazard - (correct answer) -a condition that creates or increases the frequency or severity of loss.
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Physical hazard - (correct answer) -- physical condition that increases the frequency or severity of loss
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- ex: icy roads, defective wiring
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Moral Hazard - (correct answer) -- dishonesty or character defects in an individual that increases the
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frequency or severity of loss
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- ex: insurance fraud, burning down own house to collect
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Morale hazard - (correct answer) -- carelessness or indifference to a loss, which increases the
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frequency or severity of loss
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- ex: leaving keys in unlocked car, leaving door unlocked
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Legal hazard - (correct answer) -- characteristics of legal system or regulatory environment that
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increase the frequency or severity of loss
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- ex: large damage rewards in liability lawsuits
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Particular/Diversifiable Risk - (correct answer) -A risk that affects only individuals as individuals. io io io io io io io io io io io io
Fundamental/Systematic/Non-diversifiable Risk - (correct answer) -Risk that affects a large number of io io io io io io io io io io io
individuals or the entire economy.
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