CPCU 540 FULL ASSIGNMENT TEST QUESTIONS
Robert has borrowed $5,000 for six months at an interest rate of six percent simple
interest per year. At the end of six months, the amount Bob needs to pay off the loan
plus interest is
Select one:
A. $5,000.
B. $5,050.
C. $5,150.
D. $5,300. - Answers - $5,150.
The balance sheet provides a snapshot of an organization's financial condition
Select one:
A. At the start and end of a business day.
B. For at least two points in time for comparison purposes.
C. At a given moment in time.
D. Over one 12 month period. - Answers - At a given moment in time.
ABC Insurance Company's written premiums are $2,000,000 and its earned premiums
are $1,800,000. Losses total $1,000,000, and loss adjustment expenses are $350,000.
Which one of the following represents ABC's loss ratio?
Select one:
A. 50%
B. 55%
C. 67.5%
D. 75% - Answers - 75%
Larissa is an auto claim adjuster. Traditionally, she has relied on police reports and
witness testimony in her decision making. Recent technological developments give her
access to the driver's driving habits, including acceleration, speed, and braking. This
data available to Larissa is known as
Select one:
A. Internet of Things.
B. Wearables.
C. Artificial Intelligence.
D. Telematics. - Answers - Telematics
FAM Insurance issued $100 million in catastrophe bonds through a special purpose
vehicle (SPV). Coverage attaches when losses from a Category 3 or greater hurricane
exceed $50 million. The bond pays 8 percent interest and has a 3-year term. Which one
of the following correctly states how the catastrophe bond will respond if FAM Insurance
experiences $35 million in losses from a Category 4 hurricane during the bond term?
Select one:
A. The SPV will provide 8 percent in interest for 2 out of the 3 years, and return the
principal at the end of the 3-year period.
,B. The SPV will provide 8 percent in interest each year and return the principal at the
end of the 3-year term.
C. The SPV will provide 8 percent in interest each year and return 70 percent of the
principal.
D. The SPV will provide 8 percent in interest each year and automatically roll over the
principal for another 3 years. - Answers - The SPV will provide 8 percent in interest
each year and return the principal at the end of the 3-year term.
Maja, who has 29 years of experience as a professional liability underwriter, works in
the home office of Richley Insurance Company. Her primary responsibilities involve
formulating underwriting policy and revising underwriting guides for various lines of
professional liability insurance that will be used by personnel in the company's field
offices. Maja is functioning as a
Select one:
A. Field underwriter.
B. Line underwriter.
C. Chartered underwriter.
D. Staff underwriter. - Answers - Staff UW
Unrealized capital gains are not included in accounting income. Under statutory
accounting principles (SAP), unrealized capital gains are included in
Select one:
A. Policyholders' surplus.
B. Liability statement.
C. Cash flow statement.
D. Shareholders' equity. - Answers - Policyholders' surplus
An insurer's premium-to-surplus ratio is calculated by taking
Select one:
A. Net written premium divided by policyholders' surplus.
B. Gross written premium divided by policyholders' surplus.
C. Earned premium divided by policyholders' surplus.
D. Ten percent of policyholders' surplus. - Answers - Net written premium divided by
policyholders' surplus.
Which one of the following statements about portfolio diversification is the most
accurate?
Select one:
A. In order to achieve diversification in a stock portfolio, it is necessary that at least one
of the stock's returns have a negative correlation with the other stocks in the portfolio.
B. Diversification is intended to eliminate the portfolio's exposure to market risks such
as recession and changes in interest rate levels.
C. Portfolio diversification reduces the investor's exposure to company-specific events
such as strikes or products liability lawsuits, but does not eliminate general market risk.
D. Diversification is the process of reducing the number of stocks in a portfolio until the
expected portfolio return is equal to the risk-free rate. - Answers - Portfolio
, diversification reduces the investor's exposure to company-specific events such as
strikes or products liability lawsuits, but does not eliminate general market risk.
A key accounting concept is that an organization should be valued as if it will continue
to operate indefinitely. This view is known as the
Select one:
A. Liquidation perspective.
B. Matching principle.
C. Market value principle.
D. Going concern concept. - Answers - Going concern concept.
A system developed by the National Association of Insurance Commissioners (NAIC) to
determine the minimum amount of capital an insurer needs to support its operations,
given the insurer's risk characteristics, is the
Select one:
A. Insurance Regulatory Information System (IRIS).
B. National Association of Insurance Commissioners (NAIC) system.
C. Risk-based capital (RBC) system.
D. Minimum capital requirements (MCR) system. - Answers - Risk-based capital (RBC)
system.
The focus of finance activities is on
Select one:
A. Accumulating data for internal use.
B. Reporting financial data for external use.
C. Determining an organization's tax structure.
D. Obtaining and managing an organization's capital. - Answers - Obtaining and
managing an organization's capital.
The Financial Accounting Standards Board (FASB) requires organizations to report
comprehensive income. Comprehensive income includes an organization's net income
and
Select one:
A. Change in market value of stock issued by the organization.
B. Unrealized gains on securities.
C. Write-down of goodwill due to impairment.
D. Additional capital contributions made by shareholders. - Answers - Unrealized gains
on securities.
Grayson Insurers is looking for innovative approaches to finance the risk it undertakes.
Which one of the following will Grayson most likely discover?
Select one:
A. Catastrophe bonds can be issued for any catastrophic insurable risk except
environmental risk.
B. Traditional reinsurance is the only safe and reliable way to cover its potential
liabilities.
Robert has borrowed $5,000 for six months at an interest rate of six percent simple
interest per year. At the end of six months, the amount Bob needs to pay off the loan
plus interest is
Select one:
A. $5,000.
B. $5,050.
C. $5,150.
D. $5,300. - Answers - $5,150.
The balance sheet provides a snapshot of an organization's financial condition
Select one:
A. At the start and end of a business day.
B. For at least two points in time for comparison purposes.
C. At a given moment in time.
D. Over one 12 month period. - Answers - At a given moment in time.
ABC Insurance Company's written premiums are $2,000,000 and its earned premiums
are $1,800,000. Losses total $1,000,000, and loss adjustment expenses are $350,000.
Which one of the following represents ABC's loss ratio?
Select one:
A. 50%
B. 55%
C. 67.5%
D. 75% - Answers - 75%
Larissa is an auto claim adjuster. Traditionally, she has relied on police reports and
witness testimony in her decision making. Recent technological developments give her
access to the driver's driving habits, including acceleration, speed, and braking. This
data available to Larissa is known as
Select one:
A. Internet of Things.
B. Wearables.
C. Artificial Intelligence.
D. Telematics. - Answers - Telematics
FAM Insurance issued $100 million in catastrophe bonds through a special purpose
vehicle (SPV). Coverage attaches when losses from a Category 3 or greater hurricane
exceed $50 million. The bond pays 8 percent interest and has a 3-year term. Which one
of the following correctly states how the catastrophe bond will respond if FAM Insurance
experiences $35 million in losses from a Category 4 hurricane during the bond term?
Select one:
A. The SPV will provide 8 percent in interest for 2 out of the 3 years, and return the
principal at the end of the 3-year period.
,B. The SPV will provide 8 percent in interest each year and return the principal at the
end of the 3-year term.
C. The SPV will provide 8 percent in interest each year and return 70 percent of the
principal.
D. The SPV will provide 8 percent in interest each year and automatically roll over the
principal for another 3 years. - Answers - The SPV will provide 8 percent in interest
each year and return the principal at the end of the 3-year term.
Maja, who has 29 years of experience as a professional liability underwriter, works in
the home office of Richley Insurance Company. Her primary responsibilities involve
formulating underwriting policy and revising underwriting guides for various lines of
professional liability insurance that will be used by personnel in the company's field
offices. Maja is functioning as a
Select one:
A. Field underwriter.
B. Line underwriter.
C. Chartered underwriter.
D. Staff underwriter. - Answers - Staff UW
Unrealized capital gains are not included in accounting income. Under statutory
accounting principles (SAP), unrealized capital gains are included in
Select one:
A. Policyholders' surplus.
B. Liability statement.
C. Cash flow statement.
D. Shareholders' equity. - Answers - Policyholders' surplus
An insurer's premium-to-surplus ratio is calculated by taking
Select one:
A. Net written premium divided by policyholders' surplus.
B. Gross written premium divided by policyholders' surplus.
C. Earned premium divided by policyholders' surplus.
D. Ten percent of policyholders' surplus. - Answers - Net written premium divided by
policyholders' surplus.
Which one of the following statements about portfolio diversification is the most
accurate?
Select one:
A. In order to achieve diversification in a stock portfolio, it is necessary that at least one
of the stock's returns have a negative correlation with the other stocks in the portfolio.
B. Diversification is intended to eliminate the portfolio's exposure to market risks such
as recession and changes in interest rate levels.
C. Portfolio diversification reduces the investor's exposure to company-specific events
such as strikes or products liability lawsuits, but does not eliminate general market risk.
D. Diversification is the process of reducing the number of stocks in a portfolio until the
expected portfolio return is equal to the risk-free rate. - Answers - Portfolio
, diversification reduces the investor's exposure to company-specific events such as
strikes or products liability lawsuits, but does not eliminate general market risk.
A key accounting concept is that an organization should be valued as if it will continue
to operate indefinitely. This view is known as the
Select one:
A. Liquidation perspective.
B. Matching principle.
C. Market value principle.
D. Going concern concept. - Answers - Going concern concept.
A system developed by the National Association of Insurance Commissioners (NAIC) to
determine the minimum amount of capital an insurer needs to support its operations,
given the insurer's risk characteristics, is the
Select one:
A. Insurance Regulatory Information System (IRIS).
B. National Association of Insurance Commissioners (NAIC) system.
C. Risk-based capital (RBC) system.
D. Minimum capital requirements (MCR) system. - Answers - Risk-based capital (RBC)
system.
The focus of finance activities is on
Select one:
A. Accumulating data for internal use.
B. Reporting financial data for external use.
C. Determining an organization's tax structure.
D. Obtaining and managing an organization's capital. - Answers - Obtaining and
managing an organization's capital.
The Financial Accounting Standards Board (FASB) requires organizations to report
comprehensive income. Comprehensive income includes an organization's net income
and
Select one:
A. Change in market value of stock issued by the organization.
B. Unrealized gains on securities.
C. Write-down of goodwill due to impairment.
D. Additional capital contributions made by shareholders. - Answers - Unrealized gains
on securities.
Grayson Insurers is looking for innovative approaches to finance the risk it undertakes.
Which one of the following will Grayson most likely discover?
Select one:
A. Catastrophe bonds can be issued for any catastrophic insurable risk except
environmental risk.
B. Traditional reinsurance is the only safe and reliable way to cover its potential
liabilities.
