CPCU 500 Exam (2025 updated) QUESTIONS AND
ANSWERS (DETAILED & ELABORATED) fully solved
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
A. Possibilities.
B. Uncertainties.
C. Probabilities.
D. Losses. - (ANSWER)A. Possibilities.
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
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
,D. Identifying hazards. - (ANSWER)A. Quantifying risk.
Which one of the following is measurable and quantifies risk?
A. Probability
B. Possibility
C. Uncertainty
D. Feasibility - (ANSWER)A. Probability
One of the elements of risk is uncertainty. Which one of the following best
describes the uncertainty that risk involves?
A. Uncertainty as to how to manage potential losses
B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
,D. Uncertainty as to whether insurance is available - (ANSWER)C. Uncertainty as
to the type and timing of an outcome
Hardware Store has been able to control its prices and inventory since it has no
competitors. A new highway currently being constructed is going to allow
increased competition for Hardware Store. According to the quadrants of risk, this
risk of increased competition falls into the category of
A. Strategic risk.
B. Hazard risk.
C. Operational risk.
D. Financial risk. - (ANSWER)A. Strategic risk.
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 would
be classified as a(n)
A. Strategic risk.
, B. Financial risk.
C. Operational risk.
D. Hazard risk. - (ANSWER)A. Strategic risk.
George has received an inheritance and is deciding what to do with the money.
He has limited his options to four choices: donate all the money to his favorite
charity, use the entire inheritance to buy a yacht, invest the inheritance in a small
rental property, or use the entire amount to purchase T-bills. Which one of the
following statements is true regarding the risk involved in George's options?
A. Donating his inheritance to charity is a pure risk; there is no uncertainty that
the money will be gone and George will have no chance of profit.
B. Buying a boat is a nondiversifiable risk because George can only afford to
purchase a single yacht.
C. The rental property presents both pure and speculative risk; property values
may increase, and the building could burn down.
D. Purchasing T-bills is a pure risk because the interest rate payable is known, and
the chance of loss is minimal. - (ANSWER)C. The rental property presents both
pure and speculative risk; property values may increase, and the building could
burn down.
ANSWERS (DETAILED & ELABORATED) fully solved
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
A. Possibilities.
B. Uncertainties.
C. Probabilities.
D. Losses. - (ANSWER)A. Possibilities.
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
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
,D. Identifying hazards. - (ANSWER)A. Quantifying risk.
Which one of the following is measurable and quantifies risk?
A. Probability
B. Possibility
C. Uncertainty
D. Feasibility - (ANSWER)A. Probability
One of the elements of risk is uncertainty. Which one of the following best
describes the uncertainty that risk involves?
A. Uncertainty as to how to manage potential losses
B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
,D. Uncertainty as to whether insurance is available - (ANSWER)C. Uncertainty as
to the type and timing of an outcome
Hardware Store has been able to control its prices and inventory since it has no
competitors. A new highway currently being constructed is going to allow
increased competition for Hardware Store. According to the quadrants of risk, this
risk of increased competition falls into the category of
A. Strategic risk.
B. Hazard risk.
C. Operational risk.
D. Financial risk. - (ANSWER)A. Strategic risk.
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 would
be classified as a(n)
A. Strategic risk.
, B. Financial risk.
C. Operational risk.
D. Hazard risk. - (ANSWER)A. Strategic risk.
George has received an inheritance and is deciding what to do with the money.
He has limited his options to four choices: donate all the money to his favorite
charity, use the entire inheritance to buy a yacht, invest the inheritance in a small
rental property, or use the entire amount to purchase T-bills. Which one of the
following statements is true regarding the risk involved in George's options?
A. Donating his inheritance to charity is a pure risk; there is no uncertainty that
the money will be gone and George will have no chance of profit.
B. Buying a boat is a nondiversifiable risk because George can only afford to
purchase a single yacht.
C. The rental property presents both pure and speculative risk; property values
may increase, and the building could burn down.
D. Purchasing T-bills is a pure risk because the interest rate payable is known, and
the chance of loss is minimal. - (ANSWER)C. The rental property presents both
pure and speculative risk; property values may increase, and the building could
burn down.
