RMIN 4000 UGA EDMUNDS TEST BANK
QUESTIONS AND ACCURATE ANSWERS
PRACTICE STUDY MATERIAL
●● risk
Answer: uncertainty concerning the occurrence of a loss
●● uncertainty
Answer: probabilities cannot be estimated
●● loss exposure
Answer: any situation or circumstance in which a loss is possible,
regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
●● objective risk (degree of risk)
Answer: the relative variation of actual loss from expected loss
example:10,000 houses insured of a long period of time and on average
100 houses burn each year, however it would be rare for exactly 100 to
burn each year
●● law of large numbers
,Answer: as the number of exposure units increases, the more closely the
actual loss experience will approach the expected loss experience
example: as the number of homes under observation increases, the
greater is the degree of accuracy in predicting the proportion of homes
that will burn
●● subjective risk (perceived risk)
Answer: uncertainty based on a person's mental condition or state of
mind
example: driver with previous convictions for drunk driving tries to
drive home and wonders if he will get arrested by the police or not
●● chance of loss
Answer: the probability that an event will occur
●● objective probability
Answer: the long run relative frequency of an event based on the
assumptions of an infinite number of observations and of no change in
the underlying conditions
●● two ways objective probability can be determined
, Answer: 1) deductive reasoning (priori probabilities): probability of
getting a head from the toss of a perfectly balanced coin is 1/2 bc there
are two sides
2) inductive reasoning: the probability that a person age 21 will die
before age 26 cannot be logically deduced, life insurers can estimate the
probability of death and sell a 5 year life insurance policy for a 21 yr old
●● subjective probability
Answer: the individual's personal estimate of the chance of loss
example: people who buy a lottery ticket on their birthday may believe it
is their lucky day and overestimate the small chance of winning
●● objective risk
Answer: the relative variation of actual loss from expected loss
●● peril
Answer: the cause of loss
example: house burns down, peril is the fire
●● hazard
Answer: condition that creates or increases the frequency or severity of
loss
●● 4 types of hazards
QUESTIONS AND ACCURATE ANSWERS
PRACTICE STUDY MATERIAL
●● risk
Answer: uncertainty concerning the occurrence of a loss
●● uncertainty
Answer: probabilities cannot be estimated
●● loss exposure
Answer: any situation or circumstance in which a loss is possible,
regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
●● objective risk (degree of risk)
Answer: the relative variation of actual loss from expected loss
example:10,000 houses insured of a long period of time and on average
100 houses burn each year, however it would be rare for exactly 100 to
burn each year
●● law of large numbers
,Answer: as the number of exposure units increases, the more closely the
actual loss experience will approach the expected loss experience
example: as the number of homes under observation increases, the
greater is the degree of accuracy in predicting the proportion of homes
that will burn
●● subjective risk (perceived risk)
Answer: uncertainty based on a person's mental condition or state of
mind
example: driver with previous convictions for drunk driving tries to
drive home and wonders if he will get arrested by the police or not
●● chance of loss
Answer: the probability that an event will occur
●● objective probability
Answer: the long run relative frequency of an event based on the
assumptions of an infinite number of observations and of no change in
the underlying conditions
●● two ways objective probability can be determined
, Answer: 1) deductive reasoning (priori probabilities): probability of
getting a head from the toss of a perfectly balanced coin is 1/2 bc there
are two sides
2) inductive reasoning: the probability that a person age 21 will die
before age 26 cannot be logically deduced, life insurers can estimate the
probability of death and sell a 5 year life insurance policy for a 21 yr old
●● subjective probability
Answer: the individual's personal estimate of the chance of loss
example: people who buy a lottery ticket on their birthday may believe it
is their lucky day and overestimate the small chance of winning
●● objective risk
Answer: the relative variation of actual loss from expected loss
●● peril
Answer: the cause of loss
example: house burns down, peril is the fire
●● hazard
Answer: condition that creates or increases the frequency or severity of
loss
●● 4 types of hazards
