ASSOCIATE IN RISK MANAGEMENT (ARM 401) EXAM
2025-2026 WITH SOLUTIONS
ABC is a small, regional brewery that has recently revised its entire
operation following a devastating fire at its plant. In restoring the plant to
its full operating capacity, ABC's management installed a computer-control
system that centralizes and automates many of the business and
manufacturing functions that were once done by employees. The new
computer system monitors the temperature of the beer brewing in the vats,
orders additional barley from the agricultural supplier when inventory is
depleted, receives shipments, and invoices customer product orders. As a
result of the new system, ABC expects to cut costs by more than 40% this
year, primarily by reducing the number of employees from 200 to 70.
However, in addition to cutting costs, the innovative new system has
created new loss exposures for ABC as well. Which one of the following
statements best describes a cyber risk-related net income loss for ABC? -
ANSWER-If the computer system goes down, ABC will not be able to
manufacture and sell its product
The leadership of a political party in the state where Henry lives believes
Henry would be a formidable candidate for governor. Henry's campaign
was short-lived. Three weeks after announcing his candidacy, a hacker broke
into the computer system used by State University's registrar. The hacker
found Henry's grade records and released them to the public. Henry failed
every course one semester, including receiving a grade of "F" in a political
science course. Henry was so embarrassed that he dropped out of the
campaign. Henry filed a lawsuit against Stat University alleging the school
failed to prevent unauthorized access to his academic records. Henry's
lawsuit it based on - ANSWER-Invasion of privacy
Global Reinsurance Company (GRC) is a European reinsurer that accepts
risks from insurers around the world. Financial managers at GRC would like
,to estimate profitability for next year for their five primary risk areas: flood
risk in Europe, earthquake risk in Japan, hurricane risk for the Gulf Coast of
the United States, California earthquake risk, and typhoon risk in Indian
Ocean nations. The financial managers entered event probabilities, loss
payment estimates, retained loss levels, premiums to be received, and other
data into a computer. Then the computer was programmed to select values
for each variable and based on the data, to calculate net income. The
computer was programmed to repeat the calculation 500,000 times. The
output from the analysis was a distribution showing the probability of
obtaining various profit levels. The procedure GRC used is called -
ANSWER-Computer simulation
In a normal distribution, fewer than 5% of outcomes are - ANSWER-
Outside two standard deviations above or below the mean.
Magruder Company would like to estimate the number of workers
compensation claims to expect next year. Magruder's risk manager ran a
regression analysis in which the number of workers compensation claims
was the dependent variable and the number of payroll hours worked (in
thousands) was the independent variable. The y-intercept from the
regression was 3.8. The slope coefficient was 1.4. The risk manager believes
that next year Magruder workers will work 80,000 payroll hours. Based on
this information, approximately how many workers compensation claims
should the risk manager expect next year? - ANSWER-116 (y = mx + b,
payroll is the independent x axis and claims is the dependent y axis. y = 1.4
(80) + 3.8 = 115.8, rounded to 116 claims next year)
A main difference between decision trees and event trees is - ANSWER-That
event trees analyze the consequences of accidental events rather than
decisions
,The theoretical probability of a head on a coin toss is 50%. Based on the
law of large numbers, which one of the following is the number of coin
tosses most likely to result in an empirical frequency of 50% receiving a
head on a coin toss? - ANSWER-100 (As the number of samples increase, the
empirical frequency of a head on a coin toss will move closer and closer to
50%. Of the choices provided, the number of coin tosses most likely to
result in an empirical frequency of 50% receiving a head on a coin toss is
100.)
Which one of the following statements is true if earnings at risk are
$200,000 with 90% confidence? - ANSWER-Earnings at risk are projected
to be less than $200,000 10% of the time.
If 95.44% of all outcomes are within two standard deviations above and
below the mean and 2.15% of all outcomes are between two and three
standard deviations above and 2.15% of all outcomes are between two and
three standard below the mean, the percentage of all outcomes that lie
beyond three standard deviations from (above and below) the mean is -
ANSWER-26 (100% - 95.44% - 2.15% - 2.15% =.26%; .26% of all
outcomes lie outside three standard deviations above and below the mean.)
Which one of the following is considered the most effective loss control
method against potential losses from computer hackers? - ANSWER-
Computer passwords
Mike is the new risk manager for ABC Web Hosting, LLC. ABC develops and
hosts Web sites for many different organizations. Mike took over the risk
manager position from Tom, who was let go for poor performance.
XYZ Retailer was one customer for whom ABC built a Web site. Recently,
XYZ Retailer accused ABC of not building a secure site. As a result of the site
, not being secure, XYZ Retailer claims that its sales have decreased
dramatically. XYZ also contends that the personal information of many of its
customers was compromised and, now, XYZ is being sued by a group of its
customers for not doing a better job of protecting their personal
information. Now XYZ Retailer is suing ABC Web Hosting, LLC.
Two noninsurance risk transfer methods ABC could have used as a means of
risk financing are - ANSWER-. A hold-harmless agreement and a liability
disclaimer
Third parties in a cyber insurance transaction are typically - ANSWER-
Customers of the first party.
As part of its assessment of its cyber risk, an organization should consider
whether there are any intangible property exposures. Which one of the
following would best be classified as an intangible property loss? - ANSWER-
The computer system is hacked and data including credit card numbers are
stolen.
Directors and officers of a corporation have fiduciary duties, which include
the duty of being - ANSWER-loyal
Which one of the following is a managerial control measure to protect
against the frequency of fraud losses? - ANSWER-Stay informed of new
varieties of fraud
Regional Airline Company's computer network was hacked. As a result of
the cyber attack, the system was down for 20 hours. Passengers and
customers were unable to access the company's website. When the website
came back on-line, those who visited the site received an e-mail titled,
2025-2026 WITH SOLUTIONS
ABC is a small, regional brewery that has recently revised its entire
operation following a devastating fire at its plant. In restoring the plant to
its full operating capacity, ABC's management installed a computer-control
system that centralizes and automates many of the business and
manufacturing functions that were once done by employees. The new
computer system monitors the temperature of the beer brewing in the vats,
orders additional barley from the agricultural supplier when inventory is
depleted, receives shipments, and invoices customer product orders. As a
result of the new system, ABC expects to cut costs by more than 40% this
year, primarily by reducing the number of employees from 200 to 70.
However, in addition to cutting costs, the innovative new system has
created new loss exposures for ABC as well. Which one of the following
statements best describes a cyber risk-related net income loss for ABC? -
ANSWER-If the computer system goes down, ABC will not be able to
manufacture and sell its product
The leadership of a political party in the state where Henry lives believes
Henry would be a formidable candidate for governor. Henry's campaign
was short-lived. Three weeks after announcing his candidacy, a hacker broke
into the computer system used by State University's registrar. The hacker
found Henry's grade records and released them to the public. Henry failed
every course one semester, including receiving a grade of "F" in a political
science course. Henry was so embarrassed that he dropped out of the
campaign. Henry filed a lawsuit against Stat University alleging the school
failed to prevent unauthorized access to his academic records. Henry's
lawsuit it based on - ANSWER-Invasion of privacy
Global Reinsurance Company (GRC) is a European reinsurer that accepts
risks from insurers around the world. Financial managers at GRC would like
,to estimate profitability for next year for their five primary risk areas: flood
risk in Europe, earthquake risk in Japan, hurricane risk for the Gulf Coast of
the United States, California earthquake risk, and typhoon risk in Indian
Ocean nations. The financial managers entered event probabilities, loss
payment estimates, retained loss levels, premiums to be received, and other
data into a computer. Then the computer was programmed to select values
for each variable and based on the data, to calculate net income. The
computer was programmed to repeat the calculation 500,000 times. The
output from the analysis was a distribution showing the probability of
obtaining various profit levels. The procedure GRC used is called -
ANSWER-Computer simulation
In a normal distribution, fewer than 5% of outcomes are - ANSWER-
Outside two standard deviations above or below the mean.
Magruder Company would like to estimate the number of workers
compensation claims to expect next year. Magruder's risk manager ran a
regression analysis in which the number of workers compensation claims
was the dependent variable and the number of payroll hours worked (in
thousands) was the independent variable. The y-intercept from the
regression was 3.8. The slope coefficient was 1.4. The risk manager believes
that next year Magruder workers will work 80,000 payroll hours. Based on
this information, approximately how many workers compensation claims
should the risk manager expect next year? - ANSWER-116 (y = mx + b,
payroll is the independent x axis and claims is the dependent y axis. y = 1.4
(80) + 3.8 = 115.8, rounded to 116 claims next year)
A main difference between decision trees and event trees is - ANSWER-That
event trees analyze the consequences of accidental events rather than
decisions
,The theoretical probability of a head on a coin toss is 50%. Based on the
law of large numbers, which one of the following is the number of coin
tosses most likely to result in an empirical frequency of 50% receiving a
head on a coin toss? - ANSWER-100 (As the number of samples increase, the
empirical frequency of a head on a coin toss will move closer and closer to
50%. Of the choices provided, the number of coin tosses most likely to
result in an empirical frequency of 50% receiving a head on a coin toss is
100.)
Which one of the following statements is true if earnings at risk are
$200,000 with 90% confidence? - ANSWER-Earnings at risk are projected
to be less than $200,000 10% of the time.
If 95.44% of all outcomes are within two standard deviations above and
below the mean and 2.15% of all outcomes are between two and three
standard deviations above and 2.15% of all outcomes are between two and
three standard below the mean, the percentage of all outcomes that lie
beyond three standard deviations from (above and below) the mean is -
ANSWER-26 (100% - 95.44% - 2.15% - 2.15% =.26%; .26% of all
outcomes lie outside three standard deviations above and below the mean.)
Which one of the following is considered the most effective loss control
method against potential losses from computer hackers? - ANSWER-
Computer passwords
Mike is the new risk manager for ABC Web Hosting, LLC. ABC develops and
hosts Web sites for many different organizations. Mike took over the risk
manager position from Tom, who was let go for poor performance.
XYZ Retailer was one customer for whom ABC built a Web site. Recently,
XYZ Retailer accused ABC of not building a secure site. As a result of the site
, not being secure, XYZ Retailer claims that its sales have decreased
dramatically. XYZ also contends that the personal information of many of its
customers was compromised and, now, XYZ is being sued by a group of its
customers for not doing a better job of protecting their personal
information. Now XYZ Retailer is suing ABC Web Hosting, LLC.
Two noninsurance risk transfer methods ABC could have used as a means of
risk financing are - ANSWER-. A hold-harmless agreement and a liability
disclaimer
Third parties in a cyber insurance transaction are typically - ANSWER-
Customers of the first party.
As part of its assessment of its cyber risk, an organization should consider
whether there are any intangible property exposures. Which one of the
following would best be classified as an intangible property loss? - ANSWER-
The computer system is hacked and data including credit card numbers are
stolen.
Directors and officers of a corporation have fiduciary duties, which include
the duty of being - ANSWER-loyal
Which one of the following is a managerial control measure to protect
against the frequency of fraud losses? - ANSWER-Stay informed of new
varieties of fraud
Regional Airline Company's computer network was hacked. As a result of
the cyber attack, the system was down for 20 hours. Passengers and
customers were unable to access the company's website. When the website
came back on-line, those who visited the site received an e-mail titled,
