CPCU 500 Exam Questions and Answers
Graded A+
Pure risk - Correct answer-A chance of loss or no loss, but no chance of gain
ex: chance your house burns down
Speculative risk - Correct answer-a chance of loss, no loss, or gain
ex: purchasing a stock
credit risk - Correct answer-risk that customers or other creditors will fail to make
promised payments as they come due
subjective risk - Correct answer-the perceived amount of risk based on an
individuals or organizations opinion
objective risk - Correct answer-the measurable variation in uncertain outcomes
based on facts and data
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,diversifiable risk - Correct answer-a risk that affects only some individuals,
businesses, or small groups. They are not highly correlated and can be managed
through diversification.
Ex: diversified stock portfolio
non diversifiable risk - Correct answer-a risk that affects a large segment of society
at the same time
ex: inflation, unemployment, natural disasters
systemic risk - Correct answer-the potential for a major disruption in the function
of an entire market or financial system
ex: housing crisis 2008
Market risk - Correct answer-uncertainty about an investment's future value
because of potential changes in the market for that type of investment
Liquidity risk - Correct answer-the risk that an asset cannot be sold on short notice
without incurring a loss
Enterprise risk management - Correct answer-an approach to managing all of an
organizations key business risks and opportunities with the intent of maximizing
shareholder value. Manages all risks including operational, financial, and strategic
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, Loss exposure - Correct answer-any condition or situation that presents a
possibility of loss. Has 3 elements - an asset exposed to loss, cause of loss,
financial consequences of that loss.
Hazard - Correct answer-a condition that increases the frequency or severity of a
loss
ex: gas by a fire place
Moral hazard - Correct answer-a condition that increases the likelihood that a
person will intentionally cause or exaggerate a loss
ex: overwhelming debt causing you to fabricate an insurance loss
Morale hazard (attitudinal hazard) - Correct answer-a condition of carelessness or
indifference that increases the frequency or severity of loss
ex: driving recklessly, failing to lock an unattended building
Physical hazard - Correct answer-A condition of property, persons, or operations
that increases the frequency and/or severity of loss
Ex: you are more likely to fall on an icy sidewalk
Legal hazard - Correct answer-A condition of the legal environment that increases
the frequency and/or severity of loss
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Graded A+
Pure risk - Correct answer-A chance of loss or no loss, but no chance of gain
ex: chance your house burns down
Speculative risk - Correct answer-a chance of loss, no loss, or gain
ex: purchasing a stock
credit risk - Correct answer-risk that customers or other creditors will fail to make
promised payments as they come due
subjective risk - Correct answer-the perceived amount of risk based on an
individuals or organizations opinion
objective risk - Correct answer-the measurable variation in uncertain outcomes
based on facts and data
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,diversifiable risk - Correct answer-a risk that affects only some individuals,
businesses, or small groups. They are not highly correlated and can be managed
through diversification.
Ex: diversified stock portfolio
non diversifiable risk - Correct answer-a risk that affects a large segment of society
at the same time
ex: inflation, unemployment, natural disasters
systemic risk - Correct answer-the potential for a major disruption in the function
of an entire market or financial system
ex: housing crisis 2008
Market risk - Correct answer-uncertainty about an investment's future value
because of potential changes in the market for that type of investment
Liquidity risk - Correct answer-the risk that an asset cannot be sold on short notice
without incurring a loss
Enterprise risk management - Correct answer-an approach to managing all of an
organizations key business risks and opportunities with the intent of maximizing
shareholder value. Manages all risks including operational, financial, and strategic
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, Loss exposure - Correct answer-any condition or situation that presents a
possibility of loss. Has 3 elements - an asset exposed to loss, cause of loss,
financial consequences of that loss.
Hazard - Correct answer-a condition that increases the frequency or severity of a
loss
ex: gas by a fire place
Moral hazard - Correct answer-a condition that increases the likelihood that a
person will intentionally cause or exaggerate a loss
ex: overwhelming debt causing you to fabricate an insurance loss
Morale hazard (attitudinal hazard) - Correct answer-a condition of carelessness or
indifference that increases the frequency or severity of loss
ex: driving recklessly, failing to lock an unattended building
Physical hazard - Correct answer-A condition of property, persons, or operations
that increases the frequency and/or severity of loss
Ex: you are more likely to fall on an icy sidewalk
Legal hazard - Correct answer-A condition of the legal environment that increases
the frequency and/or severity of loss
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
