CPCU 500 ACTUAL 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
Describe the contrasts of risk - CORRECT ANSWERS Hazard risks (ie. property, liability, or
personal loss exposures and are generally the subject o insurance)
Operational risks
financial risks
strategic risks
Insurable interest - CORRECT ANSWERS insured person derives a financial or other kind of
benefit from the continuous existence, without impairment or damage, of the insured object
Bailee - CORRECT ANSWERS a person or party to whom goods are delivered for a purpose,
such as custody or repair, without transfer of ownership.
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
Describe the contrasts of risk - CORRECT ANSWERS Hazard risks (ie. property, liability, or
personal loss exposures and are generally the subject o insurance)
Operational risks
financial risks
strategic risks
Insurable interest - CORRECT ANSWERS insured person derives a financial or other kind of
benefit from the continuous existence, without impairment or damage, of the insured object
Bailee - CORRECT ANSWERS a person or party to whom goods are delivered for a purpose,
such as custody or repair, without transfer of ownership.
