ARM 402 EXAM PRACTICE QUESTIONS WITH 100%
CORRECT ANSWERS NEW MODIFIED GRADED A+
TESTED AND APPROVED 2026 LATEST UPGRADE
Ed is investment manager of the Nellor Foundation, a charitable trust. Recently,
Ed met with the president of the Foundation. Up until now, assets have been
invested in financial assets. Ed told the president that after performing a
simulation, he would like to add a high-yielding, higher risk real estate
investment to the portfolio. When the president asked if it would be too risky,
Ed replied, "It will actually increase expected returns while reducing risk." The
purported reduction in risk occurs because
A. The real estate investment will not be large enough to significantly impact on
the portfolio.
B. Rental income generated by the real estate investment is not taxable.
C. Taxes on real estate investments may be deferred.
D. The real estate investment returns are negatively correlated with the other
assets. --CORRECT ANSWER--D
Which one of the following risk control techniques is generally used to reduce
the frequency of a particular loss?
A. Separation
B. Loss reduction
C. Avoidance
D. Loss prevention --CORRECT ANSWER--D
Page 1 of 149
,Which one of the following statements regarding correlation analysis is true?
A. Because it incorporates so much data, a risk professional can rely on
correlation analysis only when making a major decision.
B. Abnormal observations and inaccurate data may skew correlation analysis.
C. The range of correlation coefficients is from 0 to +1.
D. Correlation analysis can indicate causality between variables. --CORRECT
ANSWER--B
When organizations invest their assets among a mix of stocks and bonds from
companies in different industry sectors they are using the risk management
technique of
A. Diversification.
B. Duplication.
C. Risk transfer.
D. Separation. --CORRECT ANSWER--A
Diversification is a risk control technique that
A. Spreads loss exposures over numerous projects, products, markets, or
regions.
B. Views the cause of accidents to be a result of business concentration and
vertical integration.
C. Produces a copy or backup and keeps it in reserve.
Page 2 of 149
,D. Divides an asset or operation into two or more separate units. --CORRECT
ANSWER--A
Victor is the risk manager for Jones Incorporated. He decided that a bow-tie
diagram would be the best method to convey a potential risk to the executive
team. Victor will use the bow-tie diagram to do which one of the following?
A. To provide the team with all of the information it needs to know about the
risk within a very brief period of time
B. To identify the risk and list its possible causes and possible consequences on
either side
C. To depict the likeliness that the risk will occur
D. To consistently monitor risk exposures and the controls in place --
CORRECT ANSWER--B
A risk control technique that reduces the severity of a particular loss is
A. Loss reduction.
B. Loss prevention.
C. Duplication.
D. Diversification. --CORRECT ANSWER--A
Advancements in machine learning and artificial intelligence (AI) have helped
insurers do all of the following, EXCEPT:
A. Price insurance policies more precisely
Page 3 of 149
, B. Completely prevent customers' risk
C. Customize policies to more closely align with customers' actual risk
D. Deliver policy information and payment options to a mobile device --
CORRECT ANSWER--B
A local shopping center reduced its net income loss after a fire by incurring
additional expenses to shorten the time it takes to repair the damage and reopen
the shopping center. Bob, the owner of the center, hired a contractor to work
around the clock until repairs were completed. This reduced Bob's net income
loss because he was able to repair the shops sooner. Bob's action is an example
of which one of the following risk management techniques?
A. Loss prevention
B. Avoidance
C. Diversification
D. Loss reduction --CORRECT ANSWER--D
Telematics devices allow organizations to accurately identify patterns of risk
and predict risk for which one of the following types of loss exposures?
A. Automobile
B. Property
C. Workers compensation
D. Business income --CORRECT ANSWER--A
Page 4 of 149
CORRECT ANSWERS NEW MODIFIED GRADED A+
TESTED AND APPROVED 2026 LATEST UPGRADE
Ed is investment manager of the Nellor Foundation, a charitable trust. Recently,
Ed met with the president of the Foundation. Up until now, assets have been
invested in financial assets. Ed told the president that after performing a
simulation, he would like to add a high-yielding, higher risk real estate
investment to the portfolio. When the president asked if it would be too risky,
Ed replied, "It will actually increase expected returns while reducing risk." The
purported reduction in risk occurs because
A. The real estate investment will not be large enough to significantly impact on
the portfolio.
B. Rental income generated by the real estate investment is not taxable.
C. Taxes on real estate investments may be deferred.
D. The real estate investment returns are negatively correlated with the other
assets. --CORRECT ANSWER--D
Which one of the following risk control techniques is generally used to reduce
the frequency of a particular loss?
A. Separation
B. Loss reduction
C. Avoidance
D. Loss prevention --CORRECT ANSWER--D
Page 1 of 149
,Which one of the following statements regarding correlation analysis is true?
A. Because it incorporates so much data, a risk professional can rely on
correlation analysis only when making a major decision.
B. Abnormal observations and inaccurate data may skew correlation analysis.
C. The range of correlation coefficients is from 0 to +1.
D. Correlation analysis can indicate causality between variables. --CORRECT
ANSWER--B
When organizations invest their assets among a mix of stocks and bonds from
companies in different industry sectors they are using the risk management
technique of
A. Diversification.
B. Duplication.
C. Risk transfer.
D. Separation. --CORRECT ANSWER--A
Diversification is a risk control technique that
A. Spreads loss exposures over numerous projects, products, markets, or
regions.
B. Views the cause of accidents to be a result of business concentration and
vertical integration.
C. Produces a copy or backup and keeps it in reserve.
Page 2 of 149
,D. Divides an asset or operation into two or more separate units. --CORRECT
ANSWER--A
Victor is the risk manager for Jones Incorporated. He decided that a bow-tie
diagram would be the best method to convey a potential risk to the executive
team. Victor will use the bow-tie diagram to do which one of the following?
A. To provide the team with all of the information it needs to know about the
risk within a very brief period of time
B. To identify the risk and list its possible causes and possible consequences on
either side
C. To depict the likeliness that the risk will occur
D. To consistently monitor risk exposures and the controls in place --
CORRECT ANSWER--B
A risk control technique that reduces the severity of a particular loss is
A. Loss reduction.
B. Loss prevention.
C. Duplication.
D. Diversification. --CORRECT ANSWER--A
Advancements in machine learning and artificial intelligence (AI) have helped
insurers do all of the following, EXCEPT:
A. Price insurance policies more precisely
Page 3 of 149
, B. Completely prevent customers' risk
C. Customize policies to more closely align with customers' actual risk
D. Deliver policy information and payment options to a mobile device --
CORRECT ANSWER--B
A local shopping center reduced its net income loss after a fire by incurring
additional expenses to shorten the time it takes to repair the damage and reopen
the shopping center. Bob, the owner of the center, hired a contractor to work
around the clock until repairs were completed. This reduced Bob's net income
loss because he was able to repair the shops sooner. Bob's action is an example
of which one of the following risk management techniques?
A. Loss prevention
B. Avoidance
C. Diversification
D. Loss reduction --CORRECT ANSWER--D
Telematics devices allow organizations to accurately identify patterns of risk
and predict risk for which one of the following types of loss exposures?
A. Automobile
B. Property
C. Workers compensation
D. Business income --CORRECT ANSWER--A
Page 4 of 149
