CPCU 500 UPDATED Study Guide
QUESTIONS AND CORRECT ANSWERS
Describe the 2 elements of risk - CORRECT ANSWERS 1.) Uncertainty
of outcomes: risk involves uncertainty about the type of outcome, timing o
outcome, or both
2.) possibility of a negative outcome: at least of the potential outcomes is
negative
Whats the difference between possibility and probability? - CORRECT
ANSWERS Possibility: outcome may or may not occur
Probability: likelihood that an outcome will occur
Does Possibility or Probability measure risk? - CORRECT ANSWERS
Probability does, possibility DOES NOT
Explain how understanding various outcome probabilities can aid an
organization in its risk management efforts - CORRECT ANSWERS
With understanding various outcome possibilities, an organization can focus on
its risk management efforts on risk that can be appropriately manages.
Also it can also use probabilities to determine which risks to take and which
ones not
Describe how classifying risk helps an organization'r risk management process -
CORRECT ANSWERS Classification can help with assessing and
managing risks.
, Many risks in the same classification have similar attributes and can be
managed with similar techniques
Helps with the administrative function of risk management by helping to ensure
that risks in the same classification are less likely to be overlooked
Compare pure and speculative risk
Why is it important to distinguish between them? - CORRECT ANSWERS
Pure risk: chance of loss or no loss
Speculative risk: chance of profit or loss
the two different types of risk must be managed differently
Why might subjective and objective risks differ? - CORRECT ANSWERS
Familiarity and control
Consequences over likelihood
Risk awareness
Contrast diversifiable and nondiversifiable risk - CORRECT ANSWERS
Diversifiable risk: not highly correlated and can be managed through
diversification (spread) of risk
Nondiversiifiable risk: are correlated, their gains/losses tend to occur
simultaneously rater then randomly
QUESTIONS AND CORRECT ANSWERS
Describe the 2 elements of risk - CORRECT ANSWERS 1.) Uncertainty
of outcomes: risk involves uncertainty about the type of outcome, timing o
outcome, or both
2.) possibility of a negative outcome: at least of the potential outcomes is
negative
Whats the difference between possibility and probability? - CORRECT
ANSWERS Possibility: outcome may or may not occur
Probability: likelihood that an outcome will occur
Does Possibility or Probability measure risk? - CORRECT ANSWERS
Probability does, possibility DOES NOT
Explain how understanding various outcome probabilities can aid an
organization in its risk management efforts - CORRECT ANSWERS
With understanding various outcome possibilities, an organization can focus on
its risk management efforts on risk that can be appropriately manages.
Also it can also use probabilities to determine which risks to take and which
ones not
Describe how classifying risk helps an organization'r risk management process -
CORRECT ANSWERS Classification can help with assessing and
managing risks.
, Many risks in the same classification have similar attributes and can be
managed with similar techniques
Helps with the administrative function of risk management by helping to ensure
that risks in the same classification are less likely to be overlooked
Compare pure and speculative risk
Why is it important to distinguish between them? - CORRECT ANSWERS
Pure risk: chance of loss or no loss
Speculative risk: chance of profit or loss
the two different types of risk must be managed differently
Why might subjective and objective risks differ? - CORRECT ANSWERS
Familiarity and control
Consequences over likelihood
Risk awareness
Contrast diversifiable and nondiversifiable risk - CORRECT ANSWERS
Diversifiable risk: not highly correlated and can be managed through
diversification (spread) of risk
Nondiversiifiable risk: are correlated, their gains/losses tend to occur
simultaneously rater then randomly
