Question 1

Following good health habits can be categorized as

Accepted Answer

A) loss prevention. 
B) risk retention. 
C) noninsurance transfer. 
D) personal insurance.

Question 2

Which of the following statements about a priori probabilities is correct?

Accepted Answer

A) They are subjective probabilities based on ambiguity in the way probability is perceived. 
B) They are subjective probabilities that may vary among individuals because of factors such as age,gender,education,and the use of alcohol. 
C) They are objective probabilities that can be determined by deductive reasoning. 
D) They are objective probabilities that can be determined by subjective reasoning.

Question 3

Five years ago,Shannon decided to start investing monthly in the common stock of ABC Telecom Company.Her financial well-being will be harmed if the price of ABC Telecom stock drops significantly.The risk of investment loss can be reduced if she invests in other companies and other types of financial assets.The risk Shannon faces with regard to her investments is a(n)

Accepted Answer

A) enterprise risk. 
B) diversifiable risk. 
C) pure risk. 
D) nondiversifiable risk.

Question 4

From the insured's perspective,the use of deductibles in insurance contracts is an example of

Accepted Answer

A) risk transfer. 
B) risk control. 
C) risk avoidance. 
D) risk retention.

Question 5

Dense fog that increases the chance of an automobile accident is an example of a

Accepted Answer

A) speculative risk. 
B) peril. 
C) physical hazard. 
D) moral hazard.

Question 6

The production facility for ABC Manufacturing is located in a flood plain.Although the risk of flood is low,ABC's risk manager is concerned that a flood could damage the plant and equipment.He received bids on flood insurance from two insurance agents,but decided the cost of coverage was too high relative to the risk.So he did not purchase flood insurance.Which risk management technique is ABC using with respect to the risk of flood?

Accepted Answer

A) active retention 
B) noninsurance transfer 
C) passive retention 
D) avoidance

Question 7

Katelyn was just named Risk Manager of ABC Company.She has decided to create a risk management program which considers all of the risks faced by ABC-pure,speculative,operational,and strategic-in a single risk management program.Such a program is called a(n)

Accepted Answer

A) financial risk management program. 
B) enterprise risk management program. 
C) fundamental risk management program. 
D) consequential risk management program.

Question 8

An individual's personal estimate of the chance of loss is a(n)

Accepted Answer

A) objective probability. 
B) objective risk. 
C) subjective probability. 
D) a priori probability.

Question 9

Brad started a pest control business.To protect his personal assets against liability arising out of the business,Brad incorporated the business.Brad's use of the corporate form of organization to shield against personal liability claims illustrates

Accepted Answer

A) fundamental risk. 
B) noninsurance transfer. 
C) risk retention. 
D) objective risk.

Question 10

Carelessness or indifference to a loss is an example of

Accepted Answer

A) physical hazard. 
B) objective probability. 
C) moral hazard. 
D) attitudinal hazard.

Question 11

ABC Insurance Company plans to sell homeowners insurance in five Western states.ABC expects that 8 homeowners out of every 100,on average,will report claims each year.The variation between the rate of loss that ABC expects to occur and the rate of loss that actually occurs is called

Accepted Answer

A) objective probability. 
B) subjective probability. 
C) objective risk. 
D) subjective risk.

Question 12

A student who has skipped many classes and not studied the course material was surprised to learn there was a test when he showed-up for class.The student's mental uncertainty about whether or not he will pass the test is called

Accepted Answer

A) objective risk. 
B) objective probability. 
C) subjective probability. 
D) subjective risk.

Question 13

Rather than storing all of its finished goods in a single location,Davis Company divides the finished goods between two warehouses.This simple risk control technique which is designed to limit losses should a warehouse fire occur is called

Accepted Answer

A) duplication. 
B) risk transfer. 
C) separation. 
D) loss prevention.

Question 14

Which of the following is an example of a commercial risk?

Accepted Answer

A) the risk of insufficient retirement income 
B) the loss of business income 
C) the risk of premature death 
D) the risk of being unemployed

Question 15

Some members of Congress are concerned that if one or two large U.S.banks fail,it could lead to the collapse of the entire U.S.financial sector.This risk is called

Accepted Answer

A) objective risk. 
B) systemic risk. 
C) enterprise risk. 
D) subjective risk.

Question 16

Which of the following statements about liability risks is (are)true?
I.Future income and assets can be attached to pay judgments if inadequate insurance is carried.
II.There is an upper limit on the amount of loss.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 17

Cathy's car hit a patch of ice on the road.The car skidded off the road and hit a tree.The presence of ice on the road is best described as a(n)

Accepted Answer

A) peril. 
B) subjective risk. 
C) physical hazard. 
D) indirect loss.

Question 18

Objective risk is defined as

Accepted Answer

A) the probability of loss. 
B) the relative variation of actual loss from expected loss. 
C) uncertainty based on a person's mental condition or state of mind. 
D) the cause of loss.

Question 19

Which of the following statements about chance of loss and risk is (are)true?
I.If the chance of loss is identical for two groups,the objective risk must be the same.
II.Two individuals may perceive differently the risk inherent in a given activity.

Accepted Answer