CPCU 500 3rd Edition Final Practice exam 1 Questions and Answers 2024

Risk involves the possibility of a negative outcome. Possibility means - That an outcome may or may not occur. Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications? - Subjective risk can exist even where objective risk does not. The concept of correlation, in the context of why enterprise risk management works, - Is the proposition that correlation increases risk while uncorrelated risks can reduce risk The use of data gleaned from sensors to react immediately to hazardous situations is known as - Real-time risk management. Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility? New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million - $11.5 million An organization must meet the standard of care that it owes to others in order to ensure that - Legal obligations are satisfied A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps? - Compare actual results with the established performance standards. Property insurance policies not only protect the property owner but also generally protect a secured lender's interest in the financed property by - Naming the lender on the owner's policy. Perils are an important aspect of property insurance. Which one of the following statements is correct with respect to perils? - A peril is the actual means by which property is damaged or destroyed such as fire, lightning, windstorm, hail, or theft. A building contractor uses lower grade materials than called for in the specifications for an office building. A year after the building was completed, a balcony collapses, injuring several employees and customers and causing damage to the building and contents. For the building construction company, this is an example of - A completed operations liability exposure. Josephine Redmond who is the sole proprietor of Dream Quilts, Inc., operates out of three branch offices with 17 employees. What happens to Josephine's business if she dies or retires? - The business ceases to exist An auto dealer's showroom is destroyed by fire, and the dealer has to temporarily rent an adjacent building to use as a showroom. This is an example of - An extra expense Which one of the following is correct with respect to compliance reviews? - Monitoring and maintaining compliance through compliance reviews can prevent significant losses that the organization would otherwise incur. In order to avoid underestimating or overestimating loss projections, historical loss data must be expressed in - Constant dollars. Probability analysis is best suited for organizations that have - A substantial volume of data on past losses This graph illustrates a probability distribution. The horizontal axis illustrates possible outcomes, and the vertical axis shows the probability of each. Which one of the following statements is true regarding the information presented in this graph? - The most frequently occurring value is seven To determine which one of the following measures must the values in a data set be arranged by size? - Median In using the coefficient of variation when comparing two distributions, if both distributions have the same mean, then the distribution with the larger standard deviation will have - Greater variability. The normal distribution is a probability distribution that, when graphed, generates a particular type of curve. Which one of the following best describes that curve? - Bell-shaped In an array of 10 losses, if expected loss frequency is 4.2 when expected loss severity is $200.50, the expected total dollar loss is - $842.10 $200.50 X 4.2 = $842.10; In an array of 10 losses, if expected loss frequency is 4.2 when expected loss severity is $200.50, the expected total dollar loss is $842.10. Which one of the following is a risk control technique that could be considered both a loss reduction and a loss prevention measure? - Burglar alarm