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ANSWERS TO THE
Assignment
QUESTIONS IN THE
COURSE GUIDE
Foundations of Risk
Management and Insurance
CPCU 500
1st EDITION
2015 2016
Published by:
KEIR EDUCATIONAL RESOURCES
4785 Emerald Way
Middletown, OH 45044
1-800-795-5347
1-800-859-5347 FAX
Email customerservice@keirsuccess.com
www.keirsuccess.com
2016 Keir Educational Resources
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Title
Page
Risk Assessment
30
Risk Control
47
Risk Financing
55
71
79
97
115
Assignment 1
Introduction to Risk Management
Educational Objective 1
Three important concepts in the context of risk are:
Uncertainty Uncertainty implies the potential for either
favorable or unfavorable outcomes.
Possibility Possibility of loss is often discussed in
terms of loss exposures, such as liability, personal, or human
exposures, but it can also be the possibility of loss of goodwill or
missed opportunities. Loss exposures can be circumstances or
conditions that present the possibility of a financial loss, regardless
of whether or not an actual loss occurs.
Possibility compared with probability The distinction
may hinge upon the degree of likelihood. If there is a 1% chance of
something occurring, then that phenomenon is possible. If there is a
75% probability, then there is more than a mere possibility.
Possibility means that something could happen; probability means
that something is likely to happen.
Review Questions
1-1.
The two elements of risk are the possibility of loss and an
uncertain outcome.
1-2.
Possibility differs from probability. Possibility means that
there is the chance something could happen. The event will not
necessarily happen. A person could be struck by lightning on a golf
course or he could not be struck. By contrast, probability is the
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Application Question
1-4.
(a)
Atwell faces uncertainty about whether it will be
awarded some of the annual contracts, and it faces uncertainty over
which contracts it will be awarded in the coming year. Atwell is also
uncertain about whether it will be able to compete successfully with
its major competitors.
(b)
Atwell faces the possibility of losing contracts if it is
not the lowest bidder or receives low evaluations of its performance
and level of service. The new buses make it possible for Atwell to
provide a higher level of service and better overall performance than
its competitors.
(c)
The probability that Atwell will have more than two
buses out of service at any given time is low, because Atwell owns
200 new buses.
MULTIPLE CHOICE
QUESTIONS WORKBOOK
CONTENTS
Assign
Title
Que
Ans
72
Risk Assessment
16
77
Risk Control
25
83
Risk Financing
31
87
42
93
1st Edition
Insurance as a Risk
Management Technique
47
96
2015 2016
55
101
62
106
Foundations of Risk
Management and Insurance
CPCU 500
Published by:
KEIR EDUCATIONAL RESOURCES
4785 Emerald Way
Middletown, OH 45044
1-800-795-5347
1-800-859-5347 FAX
Email customerservice@keirsuccess.com
800-795-5347
Assignment 1
5.
4.
When a particular event has severe effects, such as the
damage from an earthquake, people are likely to:
(Text 1.8)
(A)
Understate the probability of death from such event.
(B)
Overstate the probability of death from such event.
(C)
Perceive more accurately the likelihood of deaths
from such event.
(D)
Assign lower probability of deaths when the event is
covered by the media.
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(A)
(B)
(C)
(D)
6.
Simultaneously
Collectively
In correlation
Randomly
Operational risk
Financial risk
Strategic risk
All of the above
7.
All of the following are financial consequences of risk for
individuals and organizations, EXCEPT:
(Text 1.13)
(A)
Expenditures on risk management
(B)
Cost of residual uncertainty
(C)
Expected cost of losses
(D)
Additional investment for profits
8.
(Text 1.14)
Speculative risk that cannot be diversified
Pure risk that can be insured on an objective basis
Risk remaining after a risk management plan is
implemented
A technique to reduce expenditures on risk
management planning
Assignment 1
Introduction to Risk Management
1.
B is the answer. The definition of risk includes two
elements: uncertainty of outcome and possibility of a negative
outcome. A probability of negative outcome means that it is likely to
occur and is not the uncertainty associated with risk. Risk is the
possibility of injury or loss. Risk may or may not be quantified or
measurable.
2.
A is the answer. Speculative risk offers the chance of loss,
gain, or no loss. Pure risk only offers chance of loss or no loss.
3.
C is the answer. Risk managers have traditionally managed
the hazard risks that involve pure risks, not business risks that
involve speculative risks. Credit risk and liquidity risk are
speculative risks.
4.
B is the answer. People tend to overstate the probability of
deaths from an event that has severe effects such as an earthquake.
Media coverage can cause people to assign a higher probability of
deaths.
5.
D is the answer. Diversifiable risks tend to occur randomly,
without correlation. Risks that occur simultaneously tend to be nondiversifiable.
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