Download CPCU 500 EXAM STUDY GUIDE|2025-2026|/ACTUAL EXAM |350QS&AS|A+GRADE and more Exams Credit and Risk Management in PDF only on Docsity!
CPCU 500 EXAM STUDY GUIDE|2025-2026|/ACTUAL EXAM
|350QS&AS|A+GRADE
In the context of risk, the chance of being injured while driving to and from work, loadinga 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 anautomobile 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 theuncertainty that risk involves? A. Uncertainty as to how to manage potential losses
charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or usethe entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? A. Donating his inheritance to charity is a pure risk; there is no uncertainty that themoney will be gone and George will have no chance of profit. B. Buying a boat is a nondiversifiable risk because George can only afford to purchasea single yacht.
C. The rental property presents both pure and speculative risk; property values mayincrease, and the building could burn down. D. Purchasing T-bills is a pure risk because the interest rate payable is known, and thechance of loss is minimal. - ANS:->>>-C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down. Risk can be classified as pure or speculative. Which one of the following is the bestexample of a speculative risk? A. Acquiring a new television B. Investing in shares of stock C. Buying a new personal vehicle D. Purchasing an insurance policy - ANS:->>>-B. Investing in shares of stock Which one of the following statements is true regarding enterprise risk management(ERM)? A. ERM is concerned with an organization's pure risk, primarily hazard risk. B. The ERM framework encompasses all stakeholders in the organization. C. In ERM, the risk management function is the responsibility of the safety manager. D. ERM requires less communication than traditional risk management. - 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.
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 ERMplan 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 knownas 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 smartproducts capture and transmit data? Select one: A. Blockchain B. Cloud
A. Reduces the residual uncertainty associated with risk. B. Increases productivity within the economy and improves overall standard of living. C. Increases the attractiveness to investors. D. Improves the allocation of productive resources. - ANS:->>>-A. Reduces theresidual uncertainty associated with risk.
Which one of the following statements is true regarding risk management efforts on thepart of individuals, organizations, and society in general? Select one: A. Organizations tend to exhibit a greater degree of risk aversion than do individuals. B. The benefits that risk management efforts provide to individuals and organizationsare 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 economicallyand efficiently. Which of the following risk management program goals is an essential goal for all publicentities? Select one:
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. Whichone of the following is true regarding this step? Select one: A. Loss exposures are analyzed based on loss frequency, loss severity, total dollarlosses, and timing in this step. B. Loss exposures that could interfere with the achievement of the organization's goalsare identified in this step. C. A weakness of loss exposure analysis is that it is useful only for those types of lossesthat 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 lossfrequency, 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 A risk management program must be monitored and periodically revised, and thatrevision involves four steps. Which one of the following is one of those four steps? Select one:
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. Itcan 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 mayor may not occur. Billy owns a beach front cottage which has become his primary residence.
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 riskfocus 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 sourceof risk and who has traditionally managed it. One approach to categorizing risks involves dividing risks into risk quadrants. The riskscategorized as hazard risks are Select one: A. Traditionally handled by the chief financial officer. B. Speculative risks that fall outside the operational risk category. C. Fundamental to an organization's existence and business plans. D. Traditionally managed by risk management professionals. - ANS:->>>- D.Traditionally managed by risk management professionals. Risk can be classified as diversifiable or nondiversifiable. Which one of the followingstatements is true with respect to this type of risk classification? Select one: A. Private insurance tends to concentrate on nondiversifiable risks;
governmentinsurance is often suitable for diversifiable risks. B. The distinction between diversifiable and nondiversifiable risks is clear; risks cannotfall under both classifications simultaneously. C. Inflation, unemployment, and natural disasters, such as hurricanes, are examples ofdiversifiable risk.
