AFSB 151 FINAL EXAM EXPECTED QUESTIONS WITH
VERIFIED ANSWERS
Question 1.
A surety bond is a written document in which one party guarantees a second party's
ANSWER
Performance to a third party for the second party's failure to fulfill an obligation.
Question 2.
Which one of the these groups, for the most part, serves the market for fidelity and surety bonds in
the United States?
ANSWER
Multiline property-casualty insurers
Question 3.
Sureties use what written document to authorize a producer to act as the surety's agent in bond
production?
ANSWER
A power of attorney
Question 4.
While suretyship and banking both use a prequalification process to extend credit to their customers,
suretyship is different from bank credit in that
ANSWER
Suretyship guarantees performance as well as monetary obligations.
Question 5.
Because most bonds are "joint and several liability" documents, the obligee can recover losses from
ANSWER
The principal or the surety, or from both.
,Question 6.
A financial guarantee differs from performance and fidelity guarantees because it requires honesty,
the ability to perform the contract, and
ANSWER
The ability to pay money to meet the contractual obligation.
Question 7.
A legal remedy that a surety can use against a defaulting bond principal, in which the surety exercises
its right to force the principal to perform by exhausting the principal's resources instead of its own, is
ANSWER
Exoneration
Question 8.
In an unlimited cosurety arrangement, the obligee can collect
ANSWER
The full loss from any of the cosureties up to the penal sum of the bond.
Question 9.
A bond that guarantees that faulty work will be corrected and defective materials will be replaced for a
period of one year or less and that is usually provided with a performance bond at no additional cost is
a
ANSWER
Maintenance bond
Question 10.
A contract bond that guarantees the local governmental authority that a principal will complete a
development in accordance with approved proposals and at the principal's expense is a
ANSWER
Subdivision bond
,Question 11.
This classification of license and permit bonds poses the least risk to the surety and guarantees that
the principal will conform with laws that govern the business or activity it conducts.
Which bond classification is described?
ANSWER
Compliance-only bonds
Question 12.
Under a public official bond guaranteeing the honesty of a treasurer,
ANSWER
He or she must account for the cash that he or she holds while in office.
Question 13.
Bond losses occur when a fiduciary and its surety are held accountable because the fiduciary did not
exercise reasonable care in notifying all heirs of an impending probate proceeding. This fiduciary is
called
ANSWER
An administrator
Question 14.
A person who commences an action against another to obtain an equitable remedy may be required
to post a bond before the court will proceed with the action. This bond is called
ANSWER
A plaintiff bond
Question 15.
The legally mandated hazardous waste facilities performance bond
ANSWER
Can be posted only for hazardous waste facilities with permits, and it requires an underwriting
review of the closure plan.
, Question 16.
The principal on a hazardous waste bond
ANSWER
Is an owner or operator of
a hazardous waste facility and is responsible for closure and postclosure care of the facility.
Question 17.
In the next step of the bond prequalification process, once the producer has compiled the contractor's
financial documents showing significant liquidity,
ANSWER
The producer may facilitate underwriter interviews to help determine the contractor's
experience in meeting past contractual obligations.
Question 18.
A contractor's percentage-of-completion estimates
ANSWER
Are based on the contractor's ability to estimate the cost to complete the project and recognize
income and profit as they accrue during the project.
Question 19.
A $5 million/$20 million contract surety credit line means that the surety is willing to
ANSWER
Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does
not exceed $20 million.
Question 20.
Which one of the following statements is true regarding surety producers' promotion?
ANSWER
Participating in professional seminars and construction industry associations is an excellent
way to communicate to a target audience.
VERIFIED ANSWERS
Question 1.
A surety bond is a written document in which one party guarantees a second party's
ANSWER
Performance to a third party for the second party's failure to fulfill an obligation.
Question 2.
Which one of the these groups, for the most part, serves the market for fidelity and surety bonds in
the United States?
ANSWER
Multiline property-casualty insurers
Question 3.
Sureties use what written document to authorize a producer to act as the surety's agent in bond
production?
ANSWER
A power of attorney
Question 4.
While suretyship and banking both use a prequalification process to extend credit to their customers,
suretyship is different from bank credit in that
ANSWER
Suretyship guarantees performance as well as monetary obligations.
Question 5.
Because most bonds are "joint and several liability" documents, the obligee can recover losses from
ANSWER
The principal or the surety, or from both.
,Question 6.
A financial guarantee differs from performance and fidelity guarantees because it requires honesty,
the ability to perform the contract, and
ANSWER
The ability to pay money to meet the contractual obligation.
Question 7.
A legal remedy that a surety can use against a defaulting bond principal, in which the surety exercises
its right to force the principal to perform by exhausting the principal's resources instead of its own, is
ANSWER
Exoneration
Question 8.
In an unlimited cosurety arrangement, the obligee can collect
ANSWER
The full loss from any of the cosureties up to the penal sum of the bond.
Question 9.
A bond that guarantees that faulty work will be corrected and defective materials will be replaced for a
period of one year or less and that is usually provided with a performance bond at no additional cost is
a
ANSWER
Maintenance bond
Question 10.
A contract bond that guarantees the local governmental authority that a principal will complete a
development in accordance with approved proposals and at the principal's expense is a
ANSWER
Subdivision bond
,Question 11.
This classification of license and permit bonds poses the least risk to the surety and guarantees that
the principal will conform with laws that govern the business or activity it conducts.
Which bond classification is described?
ANSWER
Compliance-only bonds
Question 12.
Under a public official bond guaranteeing the honesty of a treasurer,
ANSWER
He or she must account for the cash that he or she holds while in office.
Question 13.
Bond losses occur when a fiduciary and its surety are held accountable because the fiduciary did not
exercise reasonable care in notifying all heirs of an impending probate proceeding. This fiduciary is
called
ANSWER
An administrator
Question 14.
A person who commences an action against another to obtain an equitable remedy may be required
to post a bond before the court will proceed with the action. This bond is called
ANSWER
A plaintiff bond
Question 15.
The legally mandated hazardous waste facilities performance bond
ANSWER
Can be posted only for hazardous waste facilities with permits, and it requires an underwriting
review of the closure plan.
, Question 16.
The principal on a hazardous waste bond
ANSWER
Is an owner or operator of
a hazardous waste facility and is responsible for closure and postclosure care of the facility.
Question 17.
In the next step of the bond prequalification process, once the producer has compiled the contractor's
financial documents showing significant liquidity,
ANSWER
The producer may facilitate underwriter interviews to help determine the contractor's
experience in meeting past contractual obligations.
Question 18.
A contractor's percentage-of-completion estimates
ANSWER
Are based on the contractor's ability to estimate the cost to complete the project and recognize
income and profit as they accrue during the project.
Question 19.
A $5 million/$20 million contract surety credit line means that the surety is willing to
ANSWER
Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does
not exceed $20 million.
Question 20.
Which one of the following statements is true regarding surety producers' promotion?
ANSWER
Participating in professional seminars and construction industry associations is an excellent
way to communicate to a target audience.
