CPCU 540
Activity within the financial markets is important to corporations. The capital market is significant
because it
Select one:
A. Provides information for accounting statements.
B. Dictates the assets needed to support the cost of capital.
C. Generally determines the cost of long-term financing.
D. Determines the amount of capital available through borrowing. ANS: C. Generally determines the
cost of long-term financing.
Finance ANS: Which one of the following is described as a discipline concerned with determining value
and making decisions about money, banking, credit, investments, and other assets?
How would an underwriter best use a potential insured's financial statements when underwriting the
risk?
Select one:
A. To determine how much actual premium the risk can pay
B. To determine if there is any potential growth for this risk
C. To determine if the risk is committing any fraud in their operations
D. To assess the ability of the risk to make timely premium payments ANS: D. To assess the ability of the
risk to make timely premium payments
An insurance claim representative might likely use information contained in the insured's financial
statements to
Select one:
A. Determine fault after the injury to a customer.
B. Determine the cost to repair a building after a fire.
,C. Determine if a moral hazard exists after a fire loss.Correct. They would want to determine if a moral
hazard exists after a fire loss.
D. Determine if coverage exists for a damaged auto. ANS: C. Determine if a moral hazard exists after a
fire loss.
All underwriters at Wheaton Insurance are required to evaluate the clients' assets and liabilities before
renewing a policy for a retail sales company. The underwriters use this evaluation to
A. Screen for an acceptable level of financial stability.Correct. The underwriters use this evaluation to
screen for an acceptable level of financial stability.
B. Forecast the value of insurable inventory.
C. Evaluate the adequacy of the gross profit margin.
D. Estimate the value of non-reported inventory. ANS: A. Screen for an acceptable level of financial
stability.
Sean owns a retail men's clothing store. After a recent fire, the insurance adjuster requested copies of
the store's most recent financial statements. The adjuster is most likely to use the statements to
Select one:
A. Estimate the inventory on hand at the date of loss.
B. Evaluate the marketability of the inventory.
C. Forecast the store's immediate cash needs.Incorrect. The adjuster is most likely to use the statements
to estimate the inventory on hand at the date of loss.
D. Classify the inventory loss as covered or denied. ANS: A. Estimate the inventory on hand at the date
of loss.
The analysis of a potential insured's financial statements can determine an insurer's decisions on
Select one:
A. Underwriting.Correct. The underwriting decision about whether to insure an account requires an
analysis of the potential insured's financial statements to determine the appropriateness of the type and
amount of coverage requested.
,B. Claim handling.
C. Regulatory reporting.
D. Policy interpretation. ANS: A. Underwriting.
Sarbanes- Oxley Act of 2002 ANS: A federal statutory law governing corporate directors in the areas of
investor protection, internal controls, and penalties, both civil and criminal.
the requirements for maximizing shareholder wealth include all of these, EXCEPT:
Focusing on current profit
Recognizing the effects of risk, dividends, and growth on the value of the stock
Focusing on the best use of corporate financial resources to increase the value of the stock ANS:
Focusing on current profit
In addition to complying with laws and regulations, a corporate code of ethics provides
Select one:
A. Financial transparency to management.
B. Maximization of shareholder wealth.
C. The establishment of corporate goals.
D. A means of managing ethics in the workplace. ANS: D. A means of managing ethics in the workplac
Which one of the following is a consequence of focusing on the maximization of profits?
Select one:
A. Optimizing the return to shareholders for the use of their capital
B. Recognizing the effects of risk, dividends, and the value of the stock
C. Electing accounting treatments that make financial statements less useful to potential
investorsCorrect. A consequence of focusing on the maximization of profits is electing accounting
treatments that make financial statements less useful to potential investors.
, D. Focusing on long-term growth and profitability to the detriment of current profits ANS: C. Electing
accounting treatments that make financial statements less useful to potential investors
Which one of the following would be the best reason for maximization of shareholder wealth as a goal
of corporate finance?
Select one:
A. To assist in meeting regulatory requirements.Incorrect. It would be to maintain a market to raise
additional capital.
B. To maintain a market to raise additional capital.
C. To maintain the integrity of the corporate identity.
D. To retain customers in a competitive marketplace. ANS: B. To maintain a market to raise additional
capital.
The Sarbanes-Oxley Act of 2002
Select one:
A. Requires principal officers to guarantee completeness and accuracy of financial reports.Incorrect. The
Sarbanes-Oxley Act of 2002 created a board to regulate public accounting firms that audit publicly
traded corporations.
B. Enhanced financial disclosure requirements for all corporations issuing stocks.
C. Subjects officers to civil penalties for failing to fulfill requirements.
D. Created a board to regulate public accounting firms that audit publicly traded corporations. ANS: D.
Created a board to regulate public accounting firms that audit publicly traded corporations.
Sarbanes-Oxley requires the principal executive officer and the principal financial officer to certify the
accuracy of which financial reports?
Select one:
A. Bi-monthly and annual
B. Monthly and quarterly
Activity within the financial markets is important to corporations. The capital market is significant
because it
Select one:
A. Provides information for accounting statements.
B. Dictates the assets needed to support the cost of capital.
C. Generally determines the cost of long-term financing.
D. Determines the amount of capital available through borrowing. ANS: C. Generally determines the
cost of long-term financing.
Finance ANS: Which one of the following is described as a discipline concerned with determining value
and making decisions about money, banking, credit, investments, and other assets?
How would an underwriter best use a potential insured's financial statements when underwriting the
risk?
Select one:
A. To determine how much actual premium the risk can pay
B. To determine if there is any potential growth for this risk
C. To determine if the risk is committing any fraud in their operations
D. To assess the ability of the risk to make timely premium payments ANS: D. To assess the ability of the
risk to make timely premium payments
An insurance claim representative might likely use information contained in the insured's financial
statements to
Select one:
A. Determine fault after the injury to a customer.
B. Determine the cost to repair a building after a fire.
,C. Determine if a moral hazard exists after a fire loss.Correct. They would want to determine if a moral
hazard exists after a fire loss.
D. Determine if coverage exists for a damaged auto. ANS: C. Determine if a moral hazard exists after a
fire loss.
All underwriters at Wheaton Insurance are required to evaluate the clients' assets and liabilities before
renewing a policy for a retail sales company. The underwriters use this evaluation to
A. Screen for an acceptable level of financial stability.Correct. The underwriters use this evaluation to
screen for an acceptable level of financial stability.
B. Forecast the value of insurable inventory.
C. Evaluate the adequacy of the gross profit margin.
D. Estimate the value of non-reported inventory. ANS: A. Screen for an acceptable level of financial
stability.
Sean owns a retail men's clothing store. After a recent fire, the insurance adjuster requested copies of
the store's most recent financial statements. The adjuster is most likely to use the statements to
Select one:
A. Estimate the inventory on hand at the date of loss.
B. Evaluate the marketability of the inventory.
C. Forecast the store's immediate cash needs.Incorrect. The adjuster is most likely to use the statements
to estimate the inventory on hand at the date of loss.
D. Classify the inventory loss as covered or denied. ANS: A. Estimate the inventory on hand at the date
of loss.
The analysis of a potential insured's financial statements can determine an insurer's decisions on
Select one:
A. Underwriting.Correct. The underwriting decision about whether to insure an account requires an
analysis of the potential insured's financial statements to determine the appropriateness of the type and
amount of coverage requested.
,B. Claim handling.
C. Regulatory reporting.
D. Policy interpretation. ANS: A. Underwriting.
Sarbanes- Oxley Act of 2002 ANS: A federal statutory law governing corporate directors in the areas of
investor protection, internal controls, and penalties, both civil and criminal.
the requirements for maximizing shareholder wealth include all of these, EXCEPT:
Focusing on current profit
Recognizing the effects of risk, dividends, and growth on the value of the stock
Focusing on the best use of corporate financial resources to increase the value of the stock ANS:
Focusing on current profit
In addition to complying with laws and regulations, a corporate code of ethics provides
Select one:
A. Financial transparency to management.
B. Maximization of shareholder wealth.
C. The establishment of corporate goals.
D. A means of managing ethics in the workplace. ANS: D. A means of managing ethics in the workplac
Which one of the following is a consequence of focusing on the maximization of profits?
Select one:
A. Optimizing the return to shareholders for the use of their capital
B. Recognizing the effects of risk, dividends, and the value of the stock
C. Electing accounting treatments that make financial statements less useful to potential
investorsCorrect. A consequence of focusing on the maximization of profits is electing accounting
treatments that make financial statements less useful to potential investors.
, D. Focusing on long-term growth and profitability to the detriment of current profits ANS: C. Electing
accounting treatments that make financial statements less useful to potential investors
Which one of the following would be the best reason for maximization of shareholder wealth as a goal
of corporate finance?
Select one:
A. To assist in meeting regulatory requirements.Incorrect. It would be to maintain a market to raise
additional capital.
B. To maintain a market to raise additional capital.
C. To maintain the integrity of the corporate identity.
D. To retain customers in a competitive marketplace. ANS: B. To maintain a market to raise additional
capital.
The Sarbanes-Oxley Act of 2002
Select one:
A. Requires principal officers to guarantee completeness and accuracy of financial reports.Incorrect. The
Sarbanes-Oxley Act of 2002 created a board to regulate public accounting firms that audit publicly
traded corporations.
B. Enhanced financial disclosure requirements for all corporations issuing stocks.
C. Subjects officers to civil penalties for failing to fulfill requirements.
D. Created a board to regulate public accounting firms that audit publicly traded corporations. ANS: D.
Created a board to regulate public accounting firms that audit publicly traded corporations.
Sarbanes-Oxley requires the principal executive officer and the principal financial officer to certify the
accuracy of which financial reports?
Select one:
A. Bi-monthly and annual
B. Monthly and quarterly
