Question 1

The formula for the confidence interval is Estimated Mean + Estimated Standard Deviation.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following statements about the Probability Distribution is correct?

Accepted Answer

A)  A Probability Distribution deals with random variables. 
B)  A Probability Distribution shows the probability of occurrence of a variable. 
C)  A Probability Distribution shows all possible outcomes of a variable. 
D)  All of the above are correct. 
A)  A Probability Distribution deals with random variables. 
B)  A Probability Distribution shows the probability of occurrence of a variable. 
C)  A Probability Distribution shows all possible outcomes of a variable. 
D)  All of the above are correct. D

Question 3

Risk Assessment:

Accepted Answer

A)  is the first step in the Risk Management Process 
B)  is the process of identifying the broad range of risk exposures 
C)  is the process of estimating the financial impact of each risk 
D)  deals with risk identification 
A)  is the first step in the Risk Management Process 
B)  is the process of identifying the broad range of risk exposures 
C)  is the process of estimating the financial impact of each risk 
D)  deals with risk identification C

Question 4

When assessing the financial impact of a firm's pure risks, a risk manager is interested in calculating a measure of the long-run average loss that is expected in the future.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about the risk pooling is correct?

Accepted Answer

A)  Risk pooling works best if the number of parties involved is small. 
B)  Risk pooling reduces the standard deviation of the loss distribution. 
C)  Risk pooling increases the loss probability. 
D)  Risk pooling can be used to increase the cost of bearing risk. 
A)  Risk pooling works best if the number of parties involved is small. 
B)  Risk pooling reduces the standard deviation of the loss distribution. 
C)  Risk pooling increases the loss probability. 
D)  Risk pooling can be used to increase the cost of bearing risk.

Question 6

If the Average Loss Severity is $457 and the Average Loss Frequency is 0.21, the Average Loss is $95.97.

Accepted Answer

A) True 
 B)False

Question 7

Calculate the Expected Value of the following Probability Distribution:

Accepted Answer

A)  -4.65 
B)  -5.35 
C)  -4.67 
D)  -5.00 
A)  -4.65 
B)  -5.35 
C)  -4.67 
D)  -5.00

Question 8

Which of the following statements about the expected average loss is not correct?

Accepted Answer

A)  The average loss is guaranteed to happen in the upcoming year. 
B)  The average loss will be expressed in dollars. 
C)  The average loss is a tool for risk managers to handle future risks. 
D)  The average loss can be estimated by multiplying the average loss severity with the average loss frequency. 
A)  The average loss is guaranteed to happen in the upcoming year. 
B)  The average loss will be expressed in dollars. 
C)  The average loss is a tool for risk managers to handle future risks. 
D)  The average loss can be estimated by multiplying the average loss severity with the average loss frequency.

Question 9

The Expected Value of a Loss Exposure:

Accepted Answer

A)  can be used by an insurance company to calculate the insurance premium 
B)  can be used by a firm to save enough to cover the expected losses 
C)  is an estimate, and not absolute value, of future losses 
D)  All of the above are correct. 
A)  can be used by an insurance company to calculate the insurance premium 
B)  can be used by a firm to save enough to cover the expected losses 
C)  is an estimate, and not absolute value, of future losses 
D)  All of the above are correct.

Question 10

Which of the following statements about the risk charge is correct?

Accepted Answer

A)  The Risk Charge represents how much an insurance company should charge for people not paying their insurance premium. 
B)  The Risk Charge can only be calculated when the probability distribution is normal. 
C)  The Risk Charge is what is added to and subtracted from the Estimated Mean to get to the Confidence Interval. 
D)  All of the above are incorrect. 
A)  The Risk Charge represents how much an insurance company should charge for people not paying their insurance premium. 
B)  The Risk Charge can only be calculated when the probability distribution is normal. 
C)  The Risk Charge is what is added to and subtracted from the Estimated Mean to get to the Confidence Interval. 
D)  All of the above are incorrect.

Question 11

"Independence" in an insurance pool means:

Accepted Answer

A)  the bad risks pay more for insurance than good risks 
B)  the members of the pool exhibit the same level of risk 
C)  those who experience losses have their premiums raised 
D)  the occurrence of one event makes it neither more nor less probable that the other occurs 
A)  the bad risks pay more for insurance than good risks 
B)  the members of the pool exhibit the same level of risk 
C)  those who experience losses have their premiums raised 
D)  the occurrence of one event makes it neither more nor less probable that the other occurs

Question 12

Which of the following statements about the standard deviation is correct?

Accepted Answer

A)  The standard deviation is calculated by squaring the variance. 
B)  The standard deviation is a number between 0 and 1. 
C)  The standard deviation is a quantified measure of risk. 
D)  All of the above are correct. 
A)  The standard deviation is calculated by squaring the variance. 
B)  The standard deviation is a number between 0 and 1. 
C)  The standard deviation is a quantified measure of risk. 
D)  All of the above are correct.

Question 13

Calculate the Expected Value of the following Probability Distribution:

Accepted Answer

A)  -19.6 
B)  -19 
C)  -17.8 
D)  -17.2 
A)  -19.6 
B)  -19 
C)  -17.8 
D)  -17.2

Question 14

The Risk Charge represents the error arising from estimating a known variable.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements about the risk pooling is correct?

Accepted Answer

A)  Risk pooling works best if the parties involved have heterogeneous risk characteristics. 
B)  Risk pooling works best if the number of parties involved is small. 
C)  Risk pooling works best if the loss experience of the parties involved is statistically dependent. 
D)  Risk pooling, assuming some assumptions are met, reduce overall risk. 
A)  Risk pooling works best if the parties involved have heterogeneous risk characteristics. 
B)  Risk pooling works best if the number of parties involved is small. 
C)  Risk pooling works best if the loss experience of the parties involved is statistically dependent. 
D)  Risk pooling, assuming some assumptions are met, reduce overall risk.

Question 16

Discuss how probability distributions are used in estimating future losses.

Accepted Answer

Probability distributions reflect possib

Question 17

The use of loss distributions lead to a subjective estimate of risk exposure.

Accepted Answer

A) True 
 B)False

Question 18

An insurance applicant dying from cancer is not likely to be able to get insurance because:

Accepted Answer

A)  it is impossible to estimate the loss 
B)  the probability of loss is extremely high and thus the price for coverage would be uneconomical 
C)  the confidence interval is very high 
D)  the risk pool is very large 
A)  it is impossible to estimate the loss 
B)  the probability of loss is extremely high and thus the price for coverage would be uneconomical 
C)  the confidence interval is very high 
D)  the risk pool is very large

Question 19

Which of the following statements about the probability distributions is correct?

Accepted Answer

A)  The shape of a probability distribution is not dependent on the number of observations. 
B)  All probability distributions are normal. 
C)  A non-normal probability distribution will lead to a better estimate of future losses. 
D)  All of the above are incorrect. 
A)  The shape of a probability distribution is not dependent on the number of observations. 
B)  All probability distributions are normal. 
C)  A non-normal probability distribution will lead to a better estimate of future losses. 
D)  All of the above are incorrect.

Question 20

Which of the following is not a risk measure?

Accepted Answer

A)  Standard Deviation 
B)  Confidence Interval 
C)  Variance 
D)  All of the above are risk measures 
A)  Standard Deviation 
B)  Confidence Interval 
C)  Variance 
D)  All of the above are risk measures

Exam 3: Risk Assessment and Pooling

The formula for the confidence interval is Estimated Mean + Estimated Standard Deviation.

Which of the following statements about the Probability Distribution is correct?

Risk Assessment:

When assessing the financial impact of a firm's pure risks, a risk manager is interested in calculating a measure of the long-run average loss that is expected in the future.

Which of the following statements about the risk pooling is correct?

If the Average Loss Severity is $457 and the Average Loss Frequency is 0.21, the Average Loss is $95.97.

Calculate the Expected Value of the following Probability Distribution:

Which of the following statements about the expected average loss is not correct?

The Expected Value of a Loss Exposure:

Which of the following statements about the risk charge is correct?

"Independence" in an insurance pool means:

Which of the following statements about the standard deviation is correct?

Calculate the Expected Value of the following Probability Distribution:

The Risk Charge represents the error arising from estimating a known variable.

Which of the following statements about the risk pooling is correct?

Discuss how probability distributions are used in estimating future losses.

The use of loss distributions lead to a subjective estimate of risk exposure.

An insurance applicant dying from cancer is not likely to be able to get insurance because:

Which of the following statements about the probability distributions is correct?

Which of the following is not a risk measure?

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

Filters