©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM
RMI 211 EXAM 1 PRACTICE QUESTIONS AND ANSWERS
What is Risk? - Answer✔️✔️-Uncertainty regarding loss
Objective Risk - Answer✔️✔️-the relative variation of actual loss from
expected loss
Subjective Risk - Answer✔️✔️-uncertainty based on a person's mental
condition or state of mind (difficult to measure)
objective probability - Answer✔️✔️-Likelihood that a specific result will
occur, based on hard facts and numbers
a priori - Answer✔️✔️-by logical deduction such as in games of chance
empirically - Answer✔️✔️-by induction, through analysis of data
subjective probability - Answer✔️✔️-- personal estimate of the chance of loss
- it need not coincide with objective probability and is influenced by a
variety of factors including age, sex, intelligence, education, and
personality.
Chance of Loss Distinguished from Risk - Answer✔️✔️-although chance of
loss may be the same for two groups, the relative variation of actual loss
from expected loss may be quite different
Peril - Answer✔️✔️-The cause of a loss (Fire, Hurricane, Tornado)
Objective Risk - Answer✔️✔️--Can be measured by using the standard
deviation or coefficient of variation
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, ©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM
-Declines as the number of exposure units increase
Hazard - Answer✔️✔️-A condition that increases the frequency or severity
of a loss.
Physical Hazard - Answer✔️✔️-A physical condition that increases the
chance of loss.
Examples: Icy Streets, poorly designed intersections, and dimly lit
stairways.
Moral Hazard - Answer✔️✔️-Dishonesty or characteristics of an individual
that increases the chance of loss.
Example: You have not insured your house from any future damages. It
implies that a loss will be completely borne by you at the time of a
mishappening like fire or burglary. Hence you will show extra care and
attentiveness.
Attitudinal (Morale) Hazard - Answer✔️✔️-Carelessness or indifference to a
loss, which increases the frequency or severity of a loss.
Examples: Suppose a person pays insurance for his new phone. Morale
Hazard arises when the model of his phone becomes outdated, and he no
longer cares about it.
Legal Hazard - Answer✔️✔️-Characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses.
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, ©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM
Example: A court notice about a property, dispute of an insured person or
some other similar legal matter which could result in loss for the insured
and for which insurance company may have to pay.
Pure Risk - Answer✔️✔️-A situation in which there are only the possibilities
of loss or no loss.
Speculative Risk - Answer✔️✔️-A situation in which either profit or loss is
possible.
Diversifiable Risk - Answer✔️✔️-A risk that affects only individuals or small
groups and not the entire economy.
It can be reduced or eliminated by diversification.
nondiversifiable risk - Answer✔️✔️-A risk that affects the entire economy or
large numbers of persons or groups within the economy.
It cannot be eliminated or reduced by diversification.
Enterprise Risk - Answer✔️✔️-Encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk.
Personal Risk - Answer✔️✔️-Anything that exposes you to the risk of losing
something of value. Usually, the personal risk is associated with your
financial investments/insurance and personal health.
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RMI 211 EXAM 1 PRACTICE QUESTIONS AND ANSWERS
What is Risk? - Answer✔️✔️-Uncertainty regarding loss
Objective Risk - Answer✔️✔️-the relative variation of actual loss from
expected loss
Subjective Risk - Answer✔️✔️-uncertainty based on a person's mental
condition or state of mind (difficult to measure)
objective probability - Answer✔️✔️-Likelihood that a specific result will
occur, based on hard facts and numbers
a priori - Answer✔️✔️-by logical deduction such as in games of chance
empirically - Answer✔️✔️-by induction, through analysis of data
subjective probability - Answer✔️✔️-- personal estimate of the chance of loss
- it need not coincide with objective probability and is influenced by a
variety of factors including age, sex, intelligence, education, and
personality.
Chance of Loss Distinguished from Risk - Answer✔️✔️-although chance of
loss may be the same for two groups, the relative variation of actual loss
from expected loss may be quite different
Peril - Answer✔️✔️-The cause of a loss (Fire, Hurricane, Tornado)
Objective Risk - Answer✔️✔️--Can be measured by using the standard
deviation or coefficient of variation
1
, ©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM
-Declines as the number of exposure units increase
Hazard - Answer✔️✔️-A condition that increases the frequency or severity
of a loss.
Physical Hazard - Answer✔️✔️-A physical condition that increases the
chance of loss.
Examples: Icy Streets, poorly designed intersections, and dimly lit
stairways.
Moral Hazard - Answer✔️✔️-Dishonesty or characteristics of an individual
that increases the chance of loss.
Example: You have not insured your house from any future damages. It
implies that a loss will be completely borne by you at the time of a
mishappening like fire or burglary. Hence you will show extra care and
attentiveness.
Attitudinal (Morale) Hazard - Answer✔️✔️-Carelessness or indifference to a
loss, which increases the frequency or severity of a loss.
Examples: Suppose a person pays insurance for his new phone. Morale
Hazard arises when the model of his phone becomes outdated, and he no
longer cares about it.
Legal Hazard - Answer✔️✔️-Characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses.
2
, ©SOPHIABENNETT@2024-2025 Sunday, August 25, 2024 2:42 PM
Example: A court notice about a property, dispute of an insured person or
some other similar legal matter which could result in loss for the insured
and for which insurance company may have to pay.
Pure Risk - Answer✔️✔️-A situation in which there are only the possibilities
of loss or no loss.
Speculative Risk - Answer✔️✔️-A situation in which either profit or loss is
possible.
Diversifiable Risk - Answer✔️✔️-A risk that affects only individuals or small
groups and not the entire economy.
It can be reduced or eliminated by diversification.
nondiversifiable risk - Answer✔️✔️-A risk that affects the entire economy or
large numbers of persons or groups within the economy.
It cannot be eliminated or reduced by diversification.
Enterprise Risk - Answer✔️✔️-Encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk.
Personal Risk - Answer✔️✔️-Anything that exposes you to the risk of losing
something of value. Usually, the personal risk is associated with your
financial investments/insurance and personal health.
3
