CPCU 500
CPCU 500 PRACTICE EXAM 2 QUESTIONS WITH CORRECT
DETAILED ANSWERS NEWEST
1. Regarding diversifiable and nondiversifiable risk, which one of the following statements is
accurate?
Select one:
A. An example of a diversifiable risk is inflation.
B. Risks must be either diversifiable or nondiversifiable.
C. An example of a nondiversifiable risk is a fire.
D. Systemic risks are generally nondiversifiable - D. Systemic risks are generally
nondiversifiable
2. The relationship between which two basic measures is critical for risk management in assessing
risk and deciding whether and how to manage it?
Select one:
A. Correlation and likelihood
B. Likelihood and consequences
C. Exposure and time horizon
D. Volatility and time horizon - B. Likelihood and consequences
3. Which one of the following is one of the five steps of the risk management process?
Select one:
A. Establish accountability
B. Align and integrate
C. Allocate resources
D. Scan environment - D. Scan environment
4. 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?
Select one:
A. The warehouse refurbishment
B. The two new trucks
C. The new production machine
D. The software upgrade - C. The new production machine
1|Page
CPCU 500
©®
, CPCU 500
5. Which one of the following risk management objectives is critical for a manufacturer seeking
new capital from investors, stockholders, and creditors?
Select one:
A. Reduce the deterrent effects of hazard risks
B. Anticipate and recognize emerging risks
C. Social responsibility
D. Eliminate downside risk - A. Reduce the deterrent effects of hazard risks
6. Which one of the following statements is true regarding the basic measures that apply to risk
management?
Select one:
A. Longer time horizons are generally less risky that shorter ones.
B. Consequences measure the degree to which an occurrence could positively or negatively
affect an organization.
C. Hedging is a risk management strategy that can reduce the risk of correlation.
D. Risk increases as volatility decreases. - B. Consequences measure the degree to which an
occurrence could positively or negatively affect an organization.
7. 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
Select one:
A. A financial risk.
B. A hazard risk.
C. An operational risk.
D. A strategic risk. - D. A strategic risk.
8. Mid-State Packing Company, a meat processing company, is the largest private sector employer
in Metro City. First National Bank of Metro City loans money to Mid-State Packing Company and
to many of the employees of Mid-State. The problem with First National Bank of Metro City
loaning money to both the business and many employees of the business is that
Select one:
A. Loan defaults are likely to be highly correlated.
B. The interest rate charged on the loans must be equal.
C. There will be a mismatch between fixed-rate and variable-rate loans.
D. The loan durations must be the same - A. Loan defaults are likely to be highly correlated.
9. An organization must meet the standard of care that it owes to others in order to ensure that
Select one:
A. Operations are efficient.
B. Legal obligations are satisfied.
2|Page
CPCU 500
©®
CPCU 500 PRACTICE EXAM 2 QUESTIONS WITH CORRECT
DETAILED ANSWERS NEWEST
1. Regarding diversifiable and nondiversifiable risk, which one of the following statements is
accurate?
Select one:
A. An example of a diversifiable risk is inflation.
B. Risks must be either diversifiable or nondiversifiable.
C. An example of a nondiversifiable risk is a fire.
D. Systemic risks are generally nondiversifiable - D. Systemic risks are generally
nondiversifiable
2. The relationship between which two basic measures is critical for risk management in assessing
risk and deciding whether and how to manage it?
Select one:
A. Correlation and likelihood
B. Likelihood and consequences
C. Exposure and time horizon
D. Volatility and time horizon - B. Likelihood and consequences
3. Which one of the following is one of the five steps of the risk management process?
Select one:
A. Establish accountability
B. Align and integrate
C. Allocate resources
D. Scan environment - D. Scan environment
4. 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?
Select one:
A. The warehouse refurbishment
B. The two new trucks
C. The new production machine
D. The software upgrade - C. The new production machine
1|Page
CPCU 500
©®
, CPCU 500
5. Which one of the following risk management objectives is critical for a manufacturer seeking
new capital from investors, stockholders, and creditors?
Select one:
A. Reduce the deterrent effects of hazard risks
B. Anticipate and recognize emerging risks
C. Social responsibility
D. Eliminate downside risk - A. Reduce the deterrent effects of hazard risks
6. Which one of the following statements is true regarding the basic measures that apply to risk
management?
Select one:
A. Longer time horizons are generally less risky that shorter ones.
B. Consequences measure the degree to which an occurrence could positively or negatively
affect an organization.
C. Hedging is a risk management strategy that can reduce the risk of correlation.
D. Risk increases as volatility decreases. - B. Consequences measure the degree to which an
occurrence could positively or negatively affect an organization.
7. 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
Select one:
A. A financial risk.
B. A hazard risk.
C. An operational risk.
D. A strategic risk. - D. A strategic risk.
8. Mid-State Packing Company, a meat processing company, is the largest private sector employer
in Metro City. First National Bank of Metro City loans money to Mid-State Packing Company and
to many of the employees of Mid-State. The problem with First National Bank of Metro City
loaning money to both the business and many employees of the business is that
Select one:
A. Loan defaults are likely to be highly correlated.
B. The interest rate charged on the loans must be equal.
C. There will be a mismatch between fixed-rate and variable-rate loans.
D. The loan durations must be the same - A. Loan defaults are likely to be highly correlated.
9. An organization must meet the standard of care that it owes to others in order to ensure that
Select one:
A. Operations are efficient.
B. Legal obligations are satisfied.
2|Page
CPCU 500
©®
