RMIN 4000 UGA Test 1 Questions and Answers (GRADED A)

types of risk - ANSWER--pure risk -speculative risk -diversifiable risk -nondiversifiable risk -enterprise risk -systemic risk risk - ANSWER-uncertainty concerning the occurrence of a loss uncertainty - ANSWER-probabilities cannot be estimated loss exposure - ANSWER-any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs example: earthquake or flood causing damage to a manufacturing plant objective risk (degree of risk) - ANSWER-the relative variation of actual loss from expected loss example:10,000 houses insured of a long period of time and on average 100 houses burn each year, however it would be rare for exactly 100 to burn each year law of large numbers - ANSWER-as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience example: as the number of homes under observation increases, the greater is the degree of accuracy in predicting the proportion of homes that will burn subjective risk (perceived risk) - ANSWER-uncertainty based on a person's mental condition or state of mind example: driver with previous convictions for drunk driving tries to drive home and wonders if he will get arrested by the police or not chance of loss - ANSWER-the probability that an event will occur objective probability - ANSWER-the long run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions two ways objective probability can be determined - ANSWER-1) deductive reasoning (priori probabilities): probability of getting a head from the toss of a perfectly balanced coin is 1/2 bc there are two sides