CPCU 500 EXAM 2026 PRACTICE TEST PAPER
POLICY ANALYSIS REVIEW SHEET FULL
SOLUTIONS
◉ The statement, "There is a five percent chance that John will be
injured in an automobile accident while driving to work tomorrow,"
is an example of
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
D. Identifying hazards. Answer: A. Quantifying risk.
◉ Which one of the following is measurable and quantifies risk?
A. Probability
B. Possibility
,C. Uncertainty
D. Feasibility. Answer: A. Probability
◉ One of the elements of risk is uncertainty. Which one of the
following best describes the uncertainty that risk involves?
A. Uncertainty as to how to manage potential losses
B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
D. Uncertainty as to whether insurance is available. Answer: C.
Uncertainty as to the type and timing of an outcome
◉ Hardware Store has been able to control its prices and inventory
since it has no competitors. A new highway currently being
constructed is going to allow increased competition for Hardware
Store. According to the quadrants of risk, this risk of increased
competition falls into the category of
A. Strategic risk.
,B. Hazard risk.
C. Operational risk.
D. Financial risk.. Answer: A. Strategic risk.
◉ Company G is a manufacturer of high profile golf equipment. The
risk management professional for Company G is concerned about
loss of business related to product design. Failing to respond to
changing customer demand and preferences in the design of golf
clubs could cost Company G significant market share. Categorized
according to the quadrants of risk, this exposure to loss would be
classified as a(n)
A. Strategic risk.
B. Financial risk.
C. Operational risk.
D. Hazard risk.. Answer: A. Strategic risk.
, ◉ George has received an inheritance and is deciding what to do
with the money. He has limited his options to four choices: donate all
the money to his favorite charity, use the entire inheritance to buy a
yacht, invest the inheritance in a small rental property, or use the
entire amount to purchase T-bills. Which one of the following
statements is true regarding the risk involved in George's options?
A. Donating his inheritance to charity is a pure risk; there is no
uncertainty that the money will be gone and George will have no
chance of profit.
B. Buying a boat is a nondiversifiable risk because George can only
afford to purchase a single yacht.
C. The rental property presents both pure and speculative risk;
property values may increase, and the building could burn down.
D. Purchasing T-bills is a pure risk because the interest rate payable
is known, and the chance of loss is minimal.. Answer: C. The rental
property presents both pure and speculative risk; property values
may increase, and the building could burn down.
◉ Risk can be classified as pure or speculative. Which one of the
following is the best example of a speculative risk?
POLICY ANALYSIS REVIEW SHEET FULL
SOLUTIONS
◉ The statement, "There is a five percent chance that John will be
injured in an automobile accident while driving to work tomorrow,"
is an example of
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
D. Identifying hazards. Answer: A. Quantifying risk.
◉ Which one of the following is measurable and quantifies risk?
A. Probability
B. Possibility
,C. Uncertainty
D. Feasibility. Answer: A. Probability
◉ One of the elements of risk is uncertainty. Which one of the
following best describes the uncertainty that risk involves?
A. Uncertainty as to how to manage potential losses
B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
D. Uncertainty as to whether insurance is available. Answer: C.
Uncertainty as to the type and timing of an outcome
◉ Hardware Store has been able to control its prices and inventory
since it has no competitors. A new highway currently being
constructed is going to allow increased competition for Hardware
Store. According to the quadrants of risk, this risk of increased
competition falls into the category of
A. Strategic risk.
,B. Hazard risk.
C. Operational risk.
D. Financial risk.. Answer: A. Strategic risk.
◉ Company G is a manufacturer of high profile golf equipment. The
risk management professional for Company G is concerned about
loss of business related to product design. Failing to respond to
changing customer demand and preferences in the design of golf
clubs could cost Company G significant market share. Categorized
according to the quadrants of risk, this exposure to loss would be
classified as a(n)
A. Strategic risk.
B. Financial risk.
C. Operational risk.
D. Hazard risk.. Answer: A. Strategic risk.
, ◉ George has received an inheritance and is deciding what to do
with the money. He has limited his options to four choices: donate all
the money to his favorite charity, use the entire inheritance to buy a
yacht, invest the inheritance in a small rental property, or use the
entire amount to purchase T-bills. Which one of the following
statements is true regarding the risk involved in George's options?
A. Donating his inheritance to charity is a pure risk; there is no
uncertainty that the money will be gone and George will have no
chance of profit.
B. Buying a boat is a nondiversifiable risk because George can only
afford to purchase a single yacht.
C. The rental property presents both pure and speculative risk;
property values may increase, and the building could burn down.
D. Purchasing T-bills is a pure risk because the interest rate payable
is known, and the chance of loss is minimal.. Answer: C. The rental
property presents both pure and speculative risk; property values
may increase, and the building could burn down.
◉ Risk can be classified as pure or speculative. Which one of the
following is the best example of a speculative risk?
