CPCU 500 Practice Exam UPDATED Study
Guide QUESTIONS AND CORRECT
ANSWERS
Risk is... - CORRECT ANSWERS Uncertainty of Outcomes
Recalibrating predictive models to give more weight to recent events is the
insurance industry's response to which one of the following evolving risks? -
CORRECT ANSWERS Climate Change
Lori and Denise work in the same region at Taunton Insurance. They were
working on individual projects with different objectives but realized that they
could help each other out by sharing information and resources. Which one of
the following is the act of working together to achieve individual objectives
rather than a shared objective? - CORRECT ANSWERS Cooperation
The use of risk quadrants to identify and categorize risk provides a framework
for... - CORRECT ANSWERS Holistic Risk Identification
Hardware Store has been able to control its prices and inventory since it has no
competitors. A new highway currently being constructed is going to allow
increased competition for Hardware Store. According to the quadrants of risk,
this risk of increased competition falls into the category of... - CORRECT
ANSWERS Strategic Risk
Regarding diversifiable and nondiversifiable risk, which one of the following
statements is accurate? - CORRECT ANSWERS Systemic risks are
generally non-diversifiable
1. Company X hired a safety consultant to complete a walkthrough of their
operations and advise them of any unsafe conditions or out-of-compliance
procedures.
, 2. Company Y considered purchasing a new type of battery for their phones, but
the board rejected the idea due to the increased risk of product liability claims.
3. Company Z conducted a quantitative risk assessment examining the
likelihood and consequences of the major risks to their company. - CORRECT
ANSWERS Company X - Identify risks
Company Z - Analyze Risks
Company Y - Treat Risks
George has received an inheritance and is deciding what to do with the money.
He has limited his options to four choices: donate all the money to his favorite
charity, use the entire inheritance to buy a yacht, invest the inheritance in a
small rental property, or use the entire amount to purchase T-bills. Which one of
the following statements is true regarding the risk involved in George's options?
- CORRECT ANSWERS The rental property presents both pure and
speculative risk; property value may increase, and the building could burn
down.
An integral part of the risk management process is defining risk criteria. These
criteria should be aligned with an organization's (select all that apply): -
CORRECT ANSWERS Risk management policy and objectives
Sixth National Bank stores all of its financial records in an electronic data base.
Sixth National customers are able to access their accounts on-line with a user
identification number and a password. Last weekend, a computer hacker was
able to breach the firewall of the electronic database and gain access to
customer account data. This operational risk for Sixth National Bank is -
CORRECT ANSWERS a systems risk
Four Grains Cereal Company signed a contract to deliver 250,000 boxes of
cereal to a national supermarket chain at a specified price per box of cereal six
months from today. Between now and when the grain to make the cereal is
purchased, the cost of the grain may increase. If the cost of this important
ingredient increases, the profitability of the transaction will be altered. This
Guide QUESTIONS AND CORRECT
ANSWERS
Risk is... - CORRECT ANSWERS Uncertainty of Outcomes
Recalibrating predictive models to give more weight to recent events is the
insurance industry's response to which one of the following evolving risks? -
CORRECT ANSWERS Climate Change
Lori and Denise work in the same region at Taunton Insurance. They were
working on individual projects with different objectives but realized that they
could help each other out by sharing information and resources. Which one of
the following is the act of working together to achieve individual objectives
rather than a shared objective? - CORRECT ANSWERS Cooperation
The use of risk quadrants to identify and categorize risk provides a framework
for... - CORRECT ANSWERS Holistic Risk Identification
Hardware Store has been able to control its prices and inventory since it has no
competitors. A new highway currently being constructed is going to allow
increased competition for Hardware Store. According to the quadrants of risk,
this risk of increased competition falls into the category of... - CORRECT
ANSWERS Strategic Risk
Regarding diversifiable and nondiversifiable risk, which one of the following
statements is accurate? - CORRECT ANSWERS Systemic risks are
generally non-diversifiable
1. Company X hired a safety consultant to complete a walkthrough of their
operations and advise them of any unsafe conditions or out-of-compliance
procedures.
, 2. Company Y considered purchasing a new type of battery for their phones, but
the board rejected the idea due to the increased risk of product liability claims.
3. Company Z conducted a quantitative risk assessment examining the
likelihood and consequences of the major risks to their company. - CORRECT
ANSWERS Company X - Identify risks
Company Z - Analyze Risks
Company Y - Treat Risks
George has received an inheritance and is deciding what to do with the money.
He has limited his options to four choices: donate all the money to his favorite
charity, use the entire inheritance to buy a yacht, invest the inheritance in a
small rental property, or use the entire amount to purchase T-bills. Which one of
the following statements is true regarding the risk involved in George's options?
- CORRECT ANSWERS The rental property presents both pure and
speculative risk; property value may increase, and the building could burn
down.
An integral part of the risk management process is defining risk criteria. These
criteria should be aligned with an organization's (select all that apply): -
CORRECT ANSWERS Risk management policy and objectives
Sixth National Bank stores all of its financial records in an electronic data base.
Sixth National customers are able to access their accounts on-line with a user
identification number and a password. Last weekend, a computer hacker was
able to breach the firewall of the electronic database and gain access to
customer account data. This operational risk for Sixth National Bank is -
CORRECT ANSWERS a systems risk
Four Grains Cereal Company signed a contract to deliver 250,000 boxes of
cereal to a national supermarket chain at a specified price per box of cereal six
months from today. Between now and when the grain to make the cereal is
purchased, the cost of the grain may increase. If the cost of this important
ingredient increases, the profitability of the transaction will be altered. This
