CPCU 500: Assignment 2 Exam
Question And Answers
1. The fundamental purpose of a risk management framework is to
A. Reduce the cost of risk.
B. Define and eliminate potential losses.
C. Maximize profits for all stakeholders.
D. Integrate risk management throughout the organization. - CORRECT ANSWER ✔ - D. Integrate risk
management throughout the organization.
2. Risk can be classified as subjective or objective. Which one of the following statements is correct with
respect to these risk classifications?
A. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their
decisions.
B. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than
the objective risk.
C. Subjective risk can exist even where objective risk does not.
D. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or
things. - CORRECT ANSWER ✔ - C. Subjective risk can exist even where objective risk does not.
3. During the past year, International Toys has undertaken four capital projects. The company has renovated
and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its
current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly,
it has purchased a new production machine that will allow it to launch a new product line. Which one of the
following company projects is the most speculative risk?
A. The software upgrade
B. The warehouse refurbishment
C. The two new trucks
D. The new production machine - CORRECT ANSWER ✔ - D. The new production machine
4. In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and
personal auto insurance to the employees of its largest business lines account. Which one of the following
risk measures is most likely to increase as a result of this marketing decision?
A. Time horizon
B. Volatility
C. Correlation
D. Consequences - CORRECT ANSWER ✔ - C. Correlation
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CPCU 500
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, 5. An organization must meet the standard of care that it owes to others in order to ensure that
A. Post-loss goals are in place.
B. Contracts are not breached.
C. Legal obligations are satisfied.
D. Operations are efficient. - CORRECT ANSWER ✔ - C. Legal obligations are satisfied.
6. Which of the following risk management program goals is an essential goal for all public entities?
A. Earning stability
B. Continuity of operations
C. Survival
D. Growth - CORRECT ANSWER ✔ - B. Continuity of operations
7. Which one of the following statements is true regarding the basic measures that apply to risk management?
A. Hedging is a risk management strategy that can reduce the risk of correlation.
B. Risk increases as volatility decreases.
C. Longer time horizons are generally less risky that shorter ones.
D. Consequences measure the degree to which an occurrence could positively or negatively affect an
organization. - CORRECT ANSWER ✔ - D. Consequences measure the degree to which an occurrence
could positively or negatively affect an organization.
8. Company G is a manufacturer of high profile golf equipment. The risk management professional for
Company G is concerned about loss of business related to product design. Failing to respond to changing
customer demand and preferences in the design of golf clubs could cost Company G significant market
share. Categorized according to the quadrants of risk, this exposure to loss is classified as
A. An operational risk.
B. A strategic risk.
C. A hazard risk.
D. A financial risk. - CORRECT ANSWER ✔ - B. A strategic risk.
9. Which one of the following risk management program goals enhances an organization's reputation?
A. Economy of operations
B. Tolerable uncertainty
C. Survival
D. Social responsibility - CORRECT ANSWER ✔ - D. Social responsibility
10. Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with
respect to this type of risk classification?
pg. 2
CPCU 500
©®
Question And Answers
1. The fundamental purpose of a risk management framework is to
A. Reduce the cost of risk.
B. Define and eliminate potential losses.
C. Maximize profits for all stakeholders.
D. Integrate risk management throughout the organization. - CORRECT ANSWER ✔ - D. Integrate risk
management throughout the organization.
2. Risk can be classified as subjective or objective. Which one of the following statements is correct with
respect to these risk classifications?
A. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their
decisions.
B. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than
the objective risk.
C. Subjective risk can exist even where objective risk does not.
D. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or
things. - CORRECT ANSWER ✔ - C. Subjective risk can exist even where objective risk does not.
3. During the past year, International Toys has undertaken four capital projects. The company has renovated
and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its
current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly,
it has purchased a new production machine that will allow it to launch a new product line. Which one of the
following company projects is the most speculative risk?
A. The software upgrade
B. The warehouse refurbishment
C. The two new trucks
D. The new production machine - CORRECT ANSWER ✔ - D. The new production machine
4. In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and
personal auto insurance to the employees of its largest business lines account. Which one of the following
risk measures is most likely to increase as a result of this marketing decision?
A. Time horizon
B. Volatility
C. Correlation
D. Consequences - CORRECT ANSWER ✔ - C. Correlation
pg. 1
CPCU 500
©®
, 5. An organization must meet the standard of care that it owes to others in order to ensure that
A. Post-loss goals are in place.
B. Contracts are not breached.
C. Legal obligations are satisfied.
D. Operations are efficient. - CORRECT ANSWER ✔ - C. Legal obligations are satisfied.
6. Which of the following risk management program goals is an essential goal for all public entities?
A. Earning stability
B. Continuity of operations
C. Survival
D. Growth - CORRECT ANSWER ✔ - B. Continuity of operations
7. Which one of the following statements is true regarding the basic measures that apply to risk management?
A. Hedging is a risk management strategy that can reduce the risk of correlation.
B. Risk increases as volatility decreases.
C. Longer time horizons are generally less risky that shorter ones.
D. Consequences measure the degree to which an occurrence could positively or negatively affect an
organization. - CORRECT ANSWER ✔ - D. Consequences measure the degree to which an occurrence
could positively or negatively affect an organization.
8. Company G is a manufacturer of high profile golf equipment. The risk management professional for
Company G is concerned about loss of business related to product design. Failing to respond to changing
customer demand and preferences in the design of golf clubs could cost Company G significant market
share. Categorized according to the quadrants of risk, this exposure to loss is classified as
A. An operational risk.
B. A strategic risk.
C. A hazard risk.
D. A financial risk. - CORRECT ANSWER ✔ - B. A strategic risk.
9. Which one of the following risk management program goals enhances an organization's reputation?
A. Economy of operations
B. Tolerable uncertainty
C. Survival
D. Social responsibility - CORRECT ANSWER ✔ - D. Social responsibility
10. Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with
respect to this type of risk classification?
pg. 2
CPCU 500
©®
