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2025 CPCU 500 EXAM STUDY GUIDE| ACTUAL
350QUESTIONS AND ANSWERS|GRADED A+
In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of A. Possibilities. B. Uncertainties. C. Probabilities. D. Losses. >>>ANS:->>>A. Possibilities. The statement, "There is a five percent chance that John will be injured in an automobile accident while driving to work tomorrow," is an example of A. Quantifying risk. B. Verifying risk. C. Quantifying loss exposures. D. Identifying hazards. >>>ANS:->>>A. Quantifying risk. Which one of the following is measurable and quantifies risk? A. Probability B. Possibility C. Uncertainty D. Feasibility >>>ANS:->>>A. Probability
One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty that risk involves? A. Uncertainty as to how to manage potential losses B. Uncertainty as to whether a negative outcome is possible C. Uncertainty as to the type and timing of an outcome D. Uncertainty as to whether insurance is available >>>ANS:->>>C. Uncertainty as to the type and timing of an outcome 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 A. Strategic risk. B. Hazard risk. C. Operational risk. D. Financial risk. >>>ANS:->>>A. Strategic risk. Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss would be classified as a(n) A. Strategic risk. B. Financial risk. C. Operational risk. D. Hazard risk. >>>ANS:->>>A. Strategic risk. George has received an inheritance and is deciding what to do with the money.
ANS:->>>B. The ERM framework encompasses all stakeholders in the organization. A risk management plan that considers all of the risks that an organization faces, including operational, financial, and strategic risks, is called A. An enterprise risk management plan. ANS:->>>C. Uncertainty as to the type and timing of an outcome 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 A. Strategic risk. B. Hazard risk. C. Operational risk. D. Financial risk. >>>ANS:->>>A. Strategic risk. Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss would be classified as a(n) A. Strategic risk. B. Financial risk. C. Operational risk. D. Hazard risk. >>>ANS:->>>A. Strategic risk. George has received an inheritance and is deciding what to do with the money. >>>ANS:->>>B. The ERM framework encompasses all stakeholders in the organization. A risk management plan that considers all of the risks that an organization faces, including operational, financial, and strategic risks, is called A. An enterprise risk management plan. B. An open-perils risk management plan. C. A protected cell risk management plan. D. A hazard risk management plan. >>>ANS:->>>A. An enterprise risk management plan. The single largest impediment to successful implementation of an enterprise risk management (ERM) program is Select one: A. Traditional organizational culture with entrenched risk silos. B. Lack of required skills to effectively implement an ERM program. C. Lack of vision by the management team that leads to under-performance of the ERM plan and early termination. D. Opposition from stakeholders—employees, stockholders, customers, and suppliers. >>>ANS:->>>A. Traditional organizational culture with entrenched risk silos. The consensus process by which the veracity of data is confirmed and verified is known as Select one: A. Telematics. B. Machine learning.
C. The Internet of Things. D. Mining. >>>ANS:->>>D. Mining. Which one of the following is a virtual ledger of data that has been verified, timestamped, encrypted, and protected against tampering? Select one: A. Artificial intelligence B. The Internet of Things C. Closed-loop system D. Blockchain >>>ANS:->>>D. Blockchain Which one of the following is the network through which sensors and other smart products capture and transmit data? Select one: A. Blockchain B. Cloud C. Artificial intelligence D. Internet of Things >>>ANS:->>>D. Internet of Things Insurers and risk managers can use the large volumes of data collected and organized through telematics to help improve results for which one of the following types of insurance? Select one: A. Health B. Workers compensation
individuals. B. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general. C. Risk management makes those who own or run an organization more willing toundertake risky activities. D. Risk management tends to increase the deterrence effect of risk in organizations. >>>ANS:->>>C. Risk management makes those who own or run an organization more willing to undertake risky activities. Risk management programs should Select one: A. Operate economically and efficiently. B. Incur substantial costs for slight benefits. C. Be an autonomous part of the organization. D. Not use benchmarking to compare costs. >>>ANS:->>>A. Operate economically and efficiently. Which of the following risk management program goals is an essential goal for all public entities? Select one: A. Growth B. Continuity of operations C. Earning stability D. Survival >>>ANS:->>>B. Continuity of operations Aligning risks with the organization's risk appetite defines
Select one: A. Compliance. B. Tolerable uncertainty. C. Social responsibility. D. Value at risk. >>>ANS:->>>B. Tolerable uncertainty. The second step in the risk management process is analyzing loss exposures. Which one of the following is true regarding this step? Select one: A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step. B. Loss exposures that could interfere with the achievement of the organization's goals are identified in this step. C. A weakness of loss exposure analysis is that it is useful only for those types of losses that an organization has suffered in the past. D. A major strength of loss exposure analysis is that the process is generally inexpensive. >>>ANS:->>>A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step. Which one of the following is the first step in the risk management process? Select one: A. Examine the feasibility of risk management techniques B. Monitor results and revise the risk management program C. Identify loss exposures D. Analyze loss exposures >>>ANS:->>>C. Identify loss exposures
B. Likelihood of injury or damage to property C. Probability of financial loss D. Opportunity for profit >>>ANS:->>>A. Uncertainty of outcome Probabilities are stated as a decimal figure, a percentage, or a Select one: A. Stated constant. B. Fraction. C. Dollar amount. D. Credibility factor. >>>ANS:->>>B. Fraction. To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability? Select one: A. It is typically expressed verbally rather than numerically. B. It can be used to decide which activities to undertake. C. It verifies that risk is present, but does not quantify it. D. It identifies what can be lost when a negative outcome occurs. >>>ANS:-
B. It can be used to decide which activities to undertake. Risk involves the possibility of a negative outcome. Possibility means Select one: A. The likelihood of an event occurring.
B. That an outcome is unavoidable. C. An identified and predictable outcome. D. That an outcome may or may not occur. >>>ANS:->>>D. That an outcome may or may not occur. Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a Select one: A. Strategic risk. B. Subjective risk. C. Market risk. D. Speculative risk. >>>ANS:->>>B. Subjective risk. The focus of risk quadrants is different from the focus of risk classifications. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on Select one: A. Subjective and objective risks. B. The source of risk and who has traditionally managed it. C. Pure and speculative risks. D. The determination of whether the risk is diversifiable. >>>ANS:->>>B. The source of risk and who has traditionally managed it. One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are Select one:
D. Loss prevention. >>>ANS:->>>C. Loss reduction. Three main theoretical concepts explain why ERM works. Which one of the following correctly lists those three concepts? Select one: A. Objective setting, risk response, and monitoring B. Internal environment, event identification, and control activities C. Interdependency, correlation, and portfolio theory D. Risk quantification, silo theory, and statistical correlation >>>ANS:-
C. Interdependency, correlation, and portfolio theory Which one of the following is usually the single largest impediment to successful implementation of enterprise risk management (ERM)? Select one: A. The traditional organizational culture B. The financial expense C. The legal and regulatory requirements D. The risk management information system >>>ANS:->>>A. The traditional organizational culture The use of data gleaned from sensors to react immediately to hazardous situations is known as Select one: A. Forward-thinking risk management. B. Root cause risk management.
C. Real-time risk management. D. Looking-backward risk management. >>>ANS:->>>C. Real-time risk management. Which one of the following products has led to significant improvements in supply chain management by allowing for the immediate identification of discrepancies and interruptions as well as timely actions that can prevent or reduce losses? Select one: A. Wearable exoskeleton B. Accelerometer C. Closed-loop system D. Blockchain >>>ANS:->>>C. Closed-loop system Which one of the following is the network through which sensors and other smart products capture and transmit data? Select one: A. Artificial intelligence B. Internet of Things C. Blockchain D. Cloud >>>ANS:->>>B. Internet of Things The consensus process by which the veracity of data is confirmed and verified is known as Select one:
New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million Select one: A. $7.0 million B. $10.0 million C. $11.5 million D. $71.5 million >>>ANS:->>>C. $11.5 million (The cost of risk of opening the new facility is $11.5 million, calculated by adding $6 million of safety system upgrades + $1.5 million of insurance premiums + $3 million of retained losses + $1 million of risk management budget at the site) Sean recently started a small consulting practice. Sean is the only employee of the business and the sole generator of revenue. Sean is very concerned that in the event that he becomes disabled due to an accident or disease there will be no revenue coming into the business. Which one of the following goals best identify Sean's concerns? Select one: A. Social responsibility and earnings stability B. Legality and profitability C. Tolerable uncertainty and earnings stability D. Economy of risk management operations >>>ANS:->>>C. Tolerable
uncertainty and earnings stability Which one of the following is essential to an effective risk management program? Select one: A. Increased cost of risk B. Reduced waste of resources C. Support from the community as a whole D. Support of the organization's senior management >>>ANS:->>>D. Support of the organization's senior management An organization must meet the standard of care that it owes to others in order to ensure that Select one: A. Post-loss goals are in place. B. Legal obligations are satisfied. C. Operations are efficient. D. Contracts are not breached. >>>ANS:->>>B. Legal obligations are satisfied. Two steps of the risk management process, when combined, constitute the process ofassessing loss exposures. For this reason, they are probably the two most important steps in the process. These two steps are identifying loss exposures and Select one: A. Selecting the appropriate risk management techniques. B. Implementing selected risk management techniques. C. Examining feasibility of risk management techniques.
A. They are usually used in isolation. B. They minimize the frequency or severity of losses or make losses more predictable. C. They generate funds to finance losses that cannot be prevented. D. They ensure that the estimated frequency and severity of loss remain constant. >>>ANS:->>>B. They minimize the frequency or severity of losses or make losses more predictable. Which one of the following is correct with respect to the potential financial consequences of a property loss? Select one: A. When property is used to secure a loan, only the lender suffers financial consequences if that property is destroyed. B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others. C. Consumers or resellers of property do not suffer a financial loss unless they actually own property when it is damaged. D. When a mortgaged property is destroyed, the mortgagor's loss is limited to the outstanding balance of the loan. >>>ANS:->>>B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others. A secured lender (secured creditor) Select one: A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made. B. Holds property of others to perform work on it. C. Has a direct ownership interest in the property.
D. Purchases insurance to cover the borrower's loss of use of the property should the borrower default on the loan. >>>ANS:->>>A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made. For insurance purposes, money and securities are separate from other types ofcontents because Select one: A. The insurance industry considers them uninsurable. B. They are not susceptible to the same perils as other property. C. The burden of proof for a loss is on the insurer. D. They are highly susceptible to loss by theft. >>>ANS:->>>D. They are highly susceptible to loss by theft. When property is used to secure a loan, which of the following is exposed to loss? Select one: A. Neither the property owner nor the secured lender B. The property owner only C. The property owner and the secured lender D. The secured lender only >>>ANS:->>>C. The property owner and the secured lender Angelina borrows money from the bank to purchase a house. The house serves as security for the loan. In this transaction, Angelina is the
