RMIN 4000 Brown Final Exam Questions
and Answers Graded A+
Frequency - Correct answer-how often something occurs
frequency equation - Correct answer-# of losses/# of exposures
Severity - Correct answer-how much does it cost when a loss does occur
Severity equation - Correct answer-total losses ($) / number of losses
Peril - Correct answer-cause of a loss (fire, tornado, collision)
Hazard - Correct answer-A condition that increases the frequency or severity of a
loss.
Physical Hazard - Correct answer-a physical condition that increases the frequency
or severity of loss
Moral Hazard - Correct answer-the presence of insurance changes the behavior of
the insured
Morale Hazard - Correct answer-carelessness or indifference to a loss, which
increases the frequency or severity of a loss (leaving keys in unlocked car)
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, Legal Hazard - Correct answer-characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (juries in some states
are more sympathetic than in others)
Speculative risk - Correct answer-A chance of loss, no loss, or gain.
Pure risk - Correct answer-A chance of loss or no loss, but no chance of gain.
Diversifiable risk - Correct answer-affects only individuals or small groups and not
the entire economy (risks aren't correlated)
Nondiversifiable risk - Correct answer-affects the entire economy or large numbers
of groups/people within the economy (risks are correlated, government assistance
may need to insure)
Systemic risk - Correct answer-the risk of collapse of an entire system or entire
market due to the failure of a single entity or group of entities that can result in the
breakdown of the entire financial system
Personal risk - Correct answer-directly affects an individual or family; involves
possibility of loss of income, extra expenses, depletion of financial assets (death,
unemployment, disability/injury)
Property risk - Correct answer-possibility of losses associated with the destruction
or theft of property (direct or indirect)
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and Answers Graded A+
Frequency - Correct answer-how often something occurs
frequency equation - Correct answer-# of losses/# of exposures
Severity - Correct answer-how much does it cost when a loss does occur
Severity equation - Correct answer-total losses ($) / number of losses
Peril - Correct answer-cause of a loss (fire, tornado, collision)
Hazard - Correct answer-A condition that increases the frequency or severity of a
loss.
Physical Hazard - Correct answer-a physical condition that increases the frequency
or severity of loss
Moral Hazard - Correct answer-the presence of insurance changes the behavior of
the insured
Morale Hazard - Correct answer-carelessness or indifference to a loss, which
increases the frequency or severity of a loss (leaving keys in unlocked car)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
, Legal Hazard - Correct answer-characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (juries in some states
are more sympathetic than in others)
Speculative risk - Correct answer-A chance of loss, no loss, or gain.
Pure risk - Correct answer-A chance of loss or no loss, but no chance of gain.
Diversifiable risk - Correct answer-affects only individuals or small groups and not
the entire economy (risks aren't correlated)
Nondiversifiable risk - Correct answer-affects the entire economy or large numbers
of groups/people within the economy (risks are correlated, government assistance
may need to insure)
Systemic risk - Correct answer-the risk of collapse of an entire system or entire
market due to the failure of a single entity or group of entities that can result in the
breakdown of the entire financial system
Personal risk - Correct answer-directly affects an individual or family; involves
possibility of loss of income, extra expenses, depletion of financial assets (death,
unemployment, disability/injury)
Property risk - Correct answer-possibility of losses associated with the destruction
or theft of property (direct or indirect)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
