CPCU 500 3rd Edition Final Practice Exam 1
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2024 Version
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
| 100% Correct Answers | Verified | Latest
2024 Version
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
