RMI2302 Exam 2 Questions and Answers
Graded A+
Expected Utility - Correct answer-A method individuals use to make choices,
reflecting their risk-averse nature.
Expected Value - Correct answer-A calculation used by organizations to assess the
average outcome of a decision, factoring in the cost of capital.
Present Value (PV) - Correct answer-The current worth of a future sum of money
or stream of cash flows given a specified rate of return.
Lump sum Present Value formula - Correct answer-PV = FV / (1 + r)^n
Annuity Present Value formula - Correct answer-PV = PMT × [1 - (1 + r)^(-n)] / r
Biases in Decision Making - Correct answer-Factors such as age, culture,
experience, gender, and media that can distort decision-making models.
Incentives - Correct answer-Factors that can align behavior, including financial,
moral, natural, and coercive incentives.
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, Law of Unintended Consequences - Correct answer-The principle that actions of
people—and especially of governments—always have effects that are
unanticipated or unintended.
Loss Exposure - Correct answer-The potential for loss that includes three elements:
an asset exposed to loss, a cause of loss (peril), and financial consequences.
Property Risk - Correct answer-Risks associated with real and personal property,
including perils like fire and theft.
Liability Risk - Correct answer-Risks related to financial loss due to breaches,
crimes, or civil wrongs.
Life Risk (premature death) - Correct answer-The risk associated with the potential
loss of income due to premature death, dependent on wage-earning status and
dependents.
Life Risk (long life) - Correct answer-The risk of outliving one's assets, leading to
potential financial insecurity.
Health/Disability Risk - Correct answer-The risk that health issues will affect
earning capacity while expenses continue or increase.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
Graded A+
Expected Utility - Correct answer-A method individuals use to make choices,
reflecting their risk-averse nature.
Expected Value - Correct answer-A calculation used by organizations to assess the
average outcome of a decision, factoring in the cost of capital.
Present Value (PV) - Correct answer-The current worth of a future sum of money
or stream of cash flows given a specified rate of return.
Lump sum Present Value formula - Correct answer-PV = FV / (1 + r)^n
Annuity Present Value formula - Correct answer-PV = PMT × [1 - (1 + r)^(-n)] / r
Biases in Decision Making - Correct answer-Factors such as age, culture,
experience, gender, and media that can distort decision-making models.
Incentives - Correct answer-Factors that can align behavior, including financial,
moral, natural, and coercive incentives.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
, Law of Unintended Consequences - Correct answer-The principle that actions of
people—and especially of governments—always have effects that are
unanticipated or unintended.
Loss Exposure - Correct answer-The potential for loss that includes three elements:
an asset exposed to loss, a cause of loss (peril), and financial consequences.
Property Risk - Correct answer-Risks associated with real and personal property,
including perils like fire and theft.
Liability Risk - Correct answer-Risks related to financial loss due to breaches,
crimes, or civil wrongs.
Life Risk (premature death) - Correct answer-The risk associated with the potential
loss of income due to premature death, dependent on wage-earning status and
dependents.
Life Risk (long life) - Correct answer-The risk of outliving one's assets, leading to
potential financial insecurity.
Health/Disability Risk - Correct answer-The risk that health issues will affect
earning capacity while expenses continue or increase.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
