RMI 2302 EXAM 1 REVIEW QUESTIONS
What is risk? - Answers - Uncertainty regarding loss
which is riskier: jumping off a 1 story building or jumping off a 25 story building? -
Answers - 1 story building
expected value - Answers - combination of frequency and severity
freq. * severity = EV
True or False: Uncertainty can differ across individuals even when risk is the same -
Answers - true
exposure - Answers - person or property facing risk of loss
peril - Answers - the immediate cause of loss
hazard - Answers - condition affecting the frequency or severity of loss
physical hazard - Answers - property conditions
moral hazard - Answers - behavioral changes
morale hazard - Answers - indifference
societal hazard - Answers - legal or cultural
what is the burden of risk on society - Answers - -need for larger emergency funds
-loss of needed goods and services
-fear and worry
6 step risk management process - Answers - 1. determine objectives
2. identify risks
3. evaluate risks
4. consider alternatives
5. implement the decision
6. review and evaluate (usually first)
Step 1: Determination of Objectives - Answers - Post-Loss Objectives: Survival,
Continuity of Operations, Earnings Stability, Continued Growth, Social Responsibility
Pre-loss objectives: economy, reduction in anxiety, meeting externally imposed
obligations, social responsibility
What is risk? - Answers - Uncertainty regarding loss
which is riskier: jumping off a 1 story building or jumping off a 25 story building? -
Answers - 1 story building
expected value - Answers - combination of frequency and severity
freq. * severity = EV
True or False: Uncertainty can differ across individuals even when risk is the same -
Answers - true
exposure - Answers - person or property facing risk of loss
peril - Answers - the immediate cause of loss
hazard - Answers - condition affecting the frequency or severity of loss
physical hazard - Answers - property conditions
moral hazard - Answers - behavioral changes
morale hazard - Answers - indifference
societal hazard - Answers - legal or cultural
what is the burden of risk on society - Answers - -need for larger emergency funds
-loss of needed goods and services
-fear and worry
6 step risk management process - Answers - 1. determine objectives
2. identify risks
3. evaluate risks
4. consider alternatives
5. implement the decision
6. review and evaluate (usually first)
Step 1: Determination of Objectives - Answers - Post-Loss Objectives: Survival,
Continuity of Operations, Earnings Stability, Continued Growth, Social Responsibility
Pre-loss objectives: economy, reduction in anxiety, meeting externally imposed
obligations, social responsibility
