CPCU 500
CPCU 500 FINAL PRACTICE TEST QUESTIONS WITH CORRECT
DETAILED ANSWERS LATEST SOLUTION
1. Risk involves the possibility of a negative outcome. Possibility means - ANSWER ✔ - That an
outcome may or may not occur.
2. Probabilities are stated as decimal figure, a percentage, or a - ANSWER ✔ - Fraction
3. To understand risk, one needs to know the probability of an outcome or event occurring. Which
one of the following statements is correct with respect to probability? - ANSWER ✔ - It can be
used to decide which activities to undertake.
4. The statement, "There is a five percent chance that John will be injured in an automobile
accident while driving to work tomorrow," is an example of - ANSWER ✔ - Quantifying risk
5. One of the elements of risk is uncertainty. Which one of the following best describes the
uncertainty that risk involves? - ANSWER ✔ - Uncertainty as to the type and timing of an
outcome.
6. In the context of risk, the chance of being injured while driving to and from work, loading a truck
at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of -
ANSWER ✔ - Possibilities
7. Which one of the following is measurable and quantifies risk? - ANSWER ✔ - Probability
8. Risk can be classified as pure or speculative. Which one of the following is the best example of a
speculative risk? - ANSWER ✔ - Investing in shares of stock.
9. Classifying risk appropriately can help in managing risk. Which one of the following statements is
correct with respect to the classification of risk? - ANSWER ✔ - A pure risk is a chance of loss or
no loss, but no chance of gain.
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10. Risk can be classified as subjective or objective. Which one of the following statements is correct
with respect to these risk classifications? - ANSWER ✔ - Subjective risk can exist even where
objective risk does not.
11. Which one of the following statements is accurate regarding pure and speculative risks? -
ANSWER ✔ - Every business venture involves speculative risks.
12. Regarding diversifiable and nondiversifiable risk, which one of the following statements is
accurate? - ANSWER ✔ - Systemic risks are generally nondiversifiable.
13. Classifying the various types of risk can help in assessing, controlling, and financing risk as part of
the risk management process. Which one of the following statements is true regarding the
typical classifications of risk? - ANSWER ✔ - Classifications of risk can help with controlling and
financing risk.
14. Insurance deals primarily with - ANSWER ✔ - Pure risks
15. One approach to categorizing risks involves dividing risks into risk quadrants. The risks
categorized as hazards are - ANSWER ✔ - Traditionally managed by risk management
professionals.
16. The focus of risk quadrants is different from the focus of risk classifications. While the
classifications of risk focus on some aspect of risk itself, the four quadrants of risk focus on -
ANSWER ✔ - The source of risk and who has traditionally managed them.
17. Risk can be classified as divesifiable or nondiversifiable. Which one of the following statements is
true with respect to this type of risk classification? - ANSWER ✔ - Diversifiable risks tend to be
correlated so they can be managed through diversification or spread of risk.
18. Which one of the following is a main theoretical concept that explains how traditional risk
management works? - ANSWER ✔ - Silo approach.
19. Which one of the following statements is true regarding enterprise risk management (ERM)? -
ANSWER ✔ - The ERM framework encompasses all stakeholders in the organization.
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, CPCU 500
20. Which one of the following is usually the single largest impediment to successful
implementation of enterprise risk management (ERM)? - ANSWER ✔ - The traditional
organizational culture.
21. The single largest impediment to successful implementation of an enterprise risk management
(ERM) program is - ANSWER ✔ - Traditional organizational culture with entrenched risk silos.
22. Three main theoretical concepts explain how enterprise risk management (ERM) works. One
theoretical concept considers not only the combination of individual risks but also their
interactions. This theoretical concept is - ANSWER ✔ - The portfolio theory.
23. Three main theoretical concepts explain why ERM works. Which one of the following correctly
lists those three concepts? - ANSWER ✔ - Interdependency, correlation, and portfolio theory.
24. A risk management plan that considers all of the risks that an organization faces, including
operational, financial, and strategic risks, is called - ANSWER ✔ - An enterprise risk management
plan.
25. The concept of correlation, in the context of why enterprise risk management works - ANSWER
✔ - Is the proposition that correlation increases risk while uncorrelated risks can reduce risk.
26. Insurers and risk managers can use the large volumes of data collected and organized through
telematics to help improve results for which one of the following types of insurance? - ANSWER
✔ - Automobile
27. The consensus process by which the veracity of data is confirmed and verified is known as -
ANSWER ✔ - Mining
28. Which one of the following is the network through which sensors and other smart products
capture and transmit data? - ANSWER ✔ - Internet of things
29. The use of data gleaned from sensors to react immediately to hazardous situations is know as -
ANSWER ✔ - Real time risk management
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CPCU 500
©®
CPCU 500 FINAL PRACTICE TEST QUESTIONS WITH CORRECT
DETAILED ANSWERS LATEST SOLUTION
1. Risk involves the possibility of a negative outcome. Possibility means - ANSWER ✔ - That an
outcome may or may not occur.
2. Probabilities are stated as decimal figure, a percentage, or a - ANSWER ✔ - Fraction
3. To understand risk, one needs to know the probability of an outcome or event occurring. Which
one of the following statements is correct with respect to probability? - ANSWER ✔ - It can be
used to decide which activities to undertake.
4. The statement, "There is a five percent chance that John will be injured in an automobile
accident while driving to work tomorrow," is an example of - ANSWER ✔ - Quantifying risk
5. One of the elements of risk is uncertainty. Which one of the following best describes the
uncertainty that risk involves? - ANSWER ✔ - Uncertainty as to the type and timing of an
outcome.
6. In the context of risk, the chance of being injured while driving to and from work, loading a truck
at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of -
ANSWER ✔ - Possibilities
7. Which one of the following is measurable and quantifies risk? - ANSWER ✔ - Probability
8. Risk can be classified as pure or speculative. Which one of the following is the best example of a
speculative risk? - ANSWER ✔ - Investing in shares of stock.
9. Classifying risk appropriately can help in managing risk. Which one of the following statements is
correct with respect to the classification of risk? - ANSWER ✔ - A pure risk is a chance of loss or
no loss, but no chance of gain.
1|Page
CPCU 500
©®
,CPCU 500
10. Risk can be classified as subjective or objective. Which one of the following statements is correct
with respect to these risk classifications? - ANSWER ✔ - Subjective risk can exist even where
objective risk does not.
11. Which one of the following statements is accurate regarding pure and speculative risks? -
ANSWER ✔ - Every business venture involves speculative risks.
12. Regarding diversifiable and nondiversifiable risk, which one of the following statements is
accurate? - ANSWER ✔ - Systemic risks are generally nondiversifiable.
13. Classifying the various types of risk can help in assessing, controlling, and financing risk as part of
the risk management process. Which one of the following statements is true regarding the
typical classifications of risk? - ANSWER ✔ - Classifications of risk can help with controlling and
financing risk.
14. Insurance deals primarily with - ANSWER ✔ - Pure risks
15. One approach to categorizing risks involves dividing risks into risk quadrants. The risks
categorized as hazards are - ANSWER ✔ - Traditionally managed by risk management
professionals.
16. The focus of risk quadrants is different from the focus of risk classifications. While the
classifications of risk focus on some aspect of risk itself, the four quadrants of risk focus on -
ANSWER ✔ - The source of risk and who has traditionally managed them.
17. Risk can be classified as divesifiable or nondiversifiable. Which one of the following statements is
true with respect to this type of risk classification? - ANSWER ✔ - Diversifiable risks tend to be
correlated so they can be managed through diversification or spread of risk.
18. Which one of the following is a main theoretical concept that explains how traditional risk
management works? - ANSWER ✔ - Silo approach.
19. Which one of the following statements is true regarding enterprise risk management (ERM)? -
ANSWER ✔ - The ERM framework encompasses all stakeholders in the organization.
2|Page
CPCU 500
©®
, CPCU 500
20. Which one of the following is usually the single largest impediment to successful
implementation of enterprise risk management (ERM)? - ANSWER ✔ - The traditional
organizational culture.
21. The single largest impediment to successful implementation of an enterprise risk management
(ERM) program is - ANSWER ✔ - Traditional organizational culture with entrenched risk silos.
22. Three main theoretical concepts explain how enterprise risk management (ERM) works. One
theoretical concept considers not only the combination of individual risks but also their
interactions. This theoretical concept is - ANSWER ✔ - The portfolio theory.
23. Three main theoretical concepts explain why ERM works. Which one of the following correctly
lists those three concepts? - ANSWER ✔ - Interdependency, correlation, and portfolio theory.
24. A risk management plan that considers all of the risks that an organization faces, including
operational, financial, and strategic risks, is called - ANSWER ✔ - An enterprise risk management
plan.
25. The concept of correlation, in the context of why enterprise risk management works - ANSWER
✔ - Is the proposition that correlation increases risk while uncorrelated risks can reduce risk.
26. Insurers and risk managers can use the large volumes of data collected and organized through
telematics to help improve results for which one of the following types of insurance? - ANSWER
✔ - Automobile
27. The consensus process by which the veracity of data is confirmed and verified is known as -
ANSWER ✔ - Mining
28. Which one of the following is the network through which sensors and other smart products
capture and transmit data? - ANSWER ✔ - Internet of things
29. The use of data gleaned from sensors to react immediately to hazardous situations is know as -
ANSWER ✔ - Real time risk management
3|Page
CPCU 500
©®
