FINAL PRACTICE EXAM - CPCU 540 EXAM QUESTIONS & ANSWERS |
100% VERIFIED SOLUTIONS RATED A+
Which one of the following investments would be the most exposed
to interest rate risk?
U.S. Treasury Bonds
The investors in an insurer have the expectation that their
investment will grow. The investor's return is often measured by
Return on equity (ROE)
Which one of the following best explains the difference between
dividends paid to shareholders and those paid to policyholders?
Policyholder dividends are regarded as an adjustment in the price of
insurance
All of the following are examples of external factors that can affect
an insurer's underwriting profit, EXCEPT:
Ratemaking
For a primary insurer, one of the main benefits of purchasing an
excess of loss reinsurance treaty is that it can
Reduce the amount of capital the insurer must have on hand
,Which one of the following statements is true regarding an insurer's
use of loss portfolio transfer
Loss portfolio transfers are used more often as a way for an insurer
to withdraw from a segment of business than as a source of capital
Van Financial is a recently organized corporation that is attempting
to solidify its dividend policy. Currently, the market is very unstable
and uncertain. Over the past year the capital gains tax has drastically
increased. Van also has concerns regarding their ability to raise
equity capital as a newly created corporation. In creating their
dividend policy, Van is most likely to
Retain corporate earnings for its own investment
Financial management practices of insurers differ from those of
other industries. Which one of the following is a factor that
complicates an insurer's decision to pay stockholder dividends?
Special income measurement rules
Capital structure is a corporation's mix of long-term debt and equity.
Which one of the following types of debt is considered long-term
debt?
A three-year bond issue
,Which one of the following statements is true regarding the cost of
financial distress?
As the level of debt increases, the cost of financial distress increases
until at some point it exceeds the earnings per share benefit from
financial leverage.
Which one of the following is a reason why underwriting operations
do not have to generate an underwriting profit to provide insurance
leverage?
Because of timing differences between cash receipts and revenue
recognition
Compared with other industries, insurers do not have large amounts
of traditional debt or fixed assets. Which one of the following
explains how an insurer can generate insurance leverage to provide
additional funds?
An insurer can invest policyholder supplied funds (funds from
operations)
The common stock of the QRS Corp is currently selling for $99. It just
paid an annual dividend of $5, and the dividend has been growing at
a constant rate of 4%. What is the cost of equity for QRS's stock?
9.25%
, IIA insurance Company (IIA) is primarily a medical malpractice insurer
with its reserves having an average duration of six years. Since IIA's
stockholders expect a return on their investment in IIA, the money
funding these reserves has a cost to IIA. With $100 million in
reserves, IIA determines the cost of these reserves in the same
manner as the cost of debt. The yield to the 6 year duration of the
reserves is 6 percent and IIA has a marginal tax rate of 40 percent.
Which one of the following is the after-tax rate of these reserves?
3.6%
The risk that customers will fail to make promised payments as they
come due is
Credit Risk
The risk-based capital system determines the minimum amount of
capital an insurer needs to support it's operations. In addition to an
objective test of an insurer's solvency it
Matches regulatory action to the level of solvency concern
The NAIC ORSA does all of the following, EXCEPT:
Imposes rigid structure
100% VERIFIED SOLUTIONS RATED A+
Which one of the following investments would be the most exposed
to interest rate risk?
U.S. Treasury Bonds
The investors in an insurer have the expectation that their
investment will grow. The investor's return is often measured by
Return on equity (ROE)
Which one of the following best explains the difference between
dividends paid to shareholders and those paid to policyholders?
Policyholder dividends are regarded as an adjustment in the price of
insurance
All of the following are examples of external factors that can affect
an insurer's underwriting profit, EXCEPT:
Ratemaking
For a primary insurer, one of the main benefits of purchasing an
excess of loss reinsurance treaty is that it can
Reduce the amount of capital the insurer must have on hand
,Which one of the following statements is true regarding an insurer's
use of loss portfolio transfer
Loss portfolio transfers are used more often as a way for an insurer
to withdraw from a segment of business than as a source of capital
Van Financial is a recently organized corporation that is attempting
to solidify its dividend policy. Currently, the market is very unstable
and uncertain. Over the past year the capital gains tax has drastically
increased. Van also has concerns regarding their ability to raise
equity capital as a newly created corporation. In creating their
dividend policy, Van is most likely to
Retain corporate earnings for its own investment
Financial management practices of insurers differ from those of
other industries. Which one of the following is a factor that
complicates an insurer's decision to pay stockholder dividends?
Special income measurement rules
Capital structure is a corporation's mix of long-term debt and equity.
Which one of the following types of debt is considered long-term
debt?
A three-year bond issue
,Which one of the following statements is true regarding the cost of
financial distress?
As the level of debt increases, the cost of financial distress increases
until at some point it exceeds the earnings per share benefit from
financial leverage.
Which one of the following is a reason why underwriting operations
do not have to generate an underwriting profit to provide insurance
leverage?
Because of timing differences between cash receipts and revenue
recognition
Compared with other industries, insurers do not have large amounts
of traditional debt or fixed assets. Which one of the following
explains how an insurer can generate insurance leverage to provide
additional funds?
An insurer can invest policyholder supplied funds (funds from
operations)
The common stock of the QRS Corp is currently selling for $99. It just
paid an annual dividend of $5, and the dividend has been growing at
a constant rate of 4%. What is the cost of equity for QRS's stock?
9.25%
, IIA insurance Company (IIA) is primarily a medical malpractice insurer
with its reserves having an average duration of six years. Since IIA's
stockholders expect a return on their investment in IIA, the money
funding these reserves has a cost to IIA. With $100 million in
reserves, IIA determines the cost of these reserves in the same
manner as the cost of debt. The yield to the 6 year duration of the
reserves is 6 percent and IIA has a marginal tax rate of 40 percent.
Which one of the following is the after-tax rate of these reserves?
3.6%
The risk that customers will fail to make promised payments as they
come due is
Credit Risk
The risk-based capital system determines the minimum amount of
capital an insurer needs to support it's operations. In addition to an
objective test of an insurer's solvency it
Matches regulatory action to the level of solvency concern
The NAIC ORSA does all of the following, EXCEPT:
Imposes rigid structure
