FIN 341 EXAM 1 ACTUAL TEST PAPER 2026
QUESTIONS WITH SOLUTIONS GRADED A+
◉ Loss Exposure. Answer: Any situation or circumstance where a
loss is possible
◉ Objective Risk. Answer: Relative variation of actual loss from
expected loss
◉ Subjective Risk. Answer: Perceived risk, uncertainty based on a
person's mental condition or state of mind
◉ Peril. Answer: Cause of loss
Ex: fire, flood, theft
◉ Hazard. Answer: Condition that creates or increases severity or
frequency of a loss
Ex: physical, moral, legal, attitudinal hazards
◉ Physical Hazard. Answer: Physical condition that increases
frequency or severity of loss
Ex: construction & location of a house making it more or less likely
to suffer if a loss occurs
, ◉ Moral Hazard. Answer: Behavior- dishonesty or character flaws
that increase frequency or severity of loss
Ex: insurance fraud (killing husband to get life insurance payout),
charity hazard (not purchasing flood insurance when needed
because you plan to rely on gov assistance)
◉ Attitudinal Hazard. Answer: Carelessness/ indifference to a loss,
which increases frequency or severity of loss
Ex: involves no change of behavior- forgetting laptop in public, not
locking doors
◉ Legal Hazard. Answer: A condition of the legal environment that
increases loss frequency or severity
Ex: large punitive damages awarded in liability lawsuits
◉ Punitive Damages. Answer: Damages awarded to punish
defendant for negligent behavior- goal is to send message to prevent
this from occurring again
Ex: McDonald's Coffee case
◉ Classifications of Risk. Answer: Pure vs Speculative
Diversifiable vs Non-Diversifiable
Enterprise Risk
QUESTIONS WITH SOLUTIONS GRADED A+
◉ Loss Exposure. Answer: Any situation or circumstance where a
loss is possible
◉ Objective Risk. Answer: Relative variation of actual loss from
expected loss
◉ Subjective Risk. Answer: Perceived risk, uncertainty based on a
person's mental condition or state of mind
◉ Peril. Answer: Cause of loss
Ex: fire, flood, theft
◉ Hazard. Answer: Condition that creates or increases severity or
frequency of a loss
Ex: physical, moral, legal, attitudinal hazards
◉ Physical Hazard. Answer: Physical condition that increases
frequency or severity of loss
Ex: construction & location of a house making it more or less likely
to suffer if a loss occurs
, ◉ Moral Hazard. Answer: Behavior- dishonesty or character flaws
that increase frequency or severity of loss
Ex: insurance fraud (killing husband to get life insurance payout),
charity hazard (not purchasing flood insurance when needed
because you plan to rely on gov assistance)
◉ Attitudinal Hazard. Answer: Carelessness/ indifference to a loss,
which increases frequency or severity of loss
Ex: involves no change of behavior- forgetting laptop in public, not
locking doors
◉ Legal Hazard. Answer: A condition of the legal environment that
increases loss frequency or severity
Ex: large punitive damages awarded in liability lawsuits
◉ Punitive Damages. Answer: Damages awarded to punish
defendant for negligent behavior- goal is to send message to prevent
this from occurring again
Ex: McDonald's Coffee case
◉ Classifications of Risk. Answer: Pure vs Speculative
Diversifiable vs Non-Diversifiable
Enterprise Risk
