CMR EXAM 1 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. Subjective risk is defined as the cause of loss uncertainty based on a person's mental condition or state of
mind the probability of loss the relative variation of actual loss from expected None of the above
Answer:
Uncertainty based on a person's mental condition or state of mind
Question:
2. Jenna opened a successful restaurant. One night, after the restaurant had closes, a fire started when the
electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna also lost profits
that could have been earned while the restaurant was closed for repairs. The lost profits are an example of
indirect loss direct loss fundamental risk speculative risk None of the above
Answer:
indirect loss
Question:
3. The information given pertains to the fire losses of homes located in four towns, In which town is the
degree of objective risk from the peril of fire highest? Town A Town B Town C Town D Homes 10,000
10,000 1,000 10,000 Averages losses .02 .08 .01 .03 Upper loss range 300 550 12 300 Lower loss range
110 350 7 180
Answer:
Town A
Question:
4. A peril is a condition that increases the chance of a loss the cause of a loss the probability that a loss will
occur None of the above
Answer:
the cause of a loss
Question:
5. The premature death of an individual is an example of a speculative risk physical hazard attitudinal risk
nondiversifiable risk
Answer:
None of the above answers are correct (pure risk)
Question:
6. The information given pertains to a company that owns a fleet of delivery vehicles. What is the degree
of objective risk (expressed as a percentage) pertaining to collision losses? Number of delivery vehicles
1,000 Average losses per year 0.025 Upper loss range 28 Lower loss range 20 10% 51% 25% 44% 32%
Answer:
32%
, Question:
7. A __________ is the risk of financial loss from a lawsuit or other negligence claim property risk social
risk political risk liability risk health risk
Answer:
liability risk
Question:
8. Which of the following statements are true regarding the risk manager (or CRO) of a firm? l. The risk
manager influences many aspects of a firm operations, including profitability, the implementation of safety
programs, and insurance purchases. ll. It is not necessary for the risk manager to have any technical
expertise of loss control measures.
Answer:
l only
Question:
9. ABC Insurance company plans to sell homeowners insurance in five western states. ABC expects that 8
homeowners out of every 100, on average, will report claims each year. The variation between the rate of
loss that ABC expects to occur and the rate of loss that actually does occur is called subjective risk
subjective probability objective risk objective probability None of the above
Answer:
objective risk
Question:
10. A coordinated ERM treatment should result in all of the following changes except: An increase in cost
predictability Reduced cash flow volatility Increased earnings volatility The creation of detailed awareness
of risk scenarios and their potential impacts Decreased risk-based expenses
Answer:
Increased earnings volatility
Question:
11. All of the following are challenges to implementing an enterprise risk management program except:
Lack of support from senior management Excessive willingness to invest capital into risk management
activities Unclear responsibilities for implementation Lack of common language regarding risk Lack of
leadership skills required for implementation
Answer:
Excessive willingness to invest capital into risk management activities
Question:
12. Which of the following statements is(are) true? l. Traditional risk management typically focuses on
pure, hazard risk ll. Enterprise risk management largely ignores the correlation of risk
Answer:
l only
Question:
13. The CRO of ABC Corp. has identified a loss exposure of marginal consequences as having a very
likely chance of occurring. What is the expected impact of this loss exposure on ABC Corp.? Excessively
high High Moderate Low Excessively low
CORRECT ANSWERS
Question:
1. Subjective risk is defined as the cause of loss uncertainty based on a person's mental condition or state of
mind the probability of loss the relative variation of actual loss from expected None of the above
Answer:
Uncertainty based on a person's mental condition or state of mind
Question:
2. Jenna opened a successful restaurant. One night, after the restaurant had closes, a fire started when the
electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna also lost profits
that could have been earned while the restaurant was closed for repairs. The lost profits are an example of
indirect loss direct loss fundamental risk speculative risk None of the above
Answer:
indirect loss
Question:
3. The information given pertains to the fire losses of homes located in four towns, In which town is the
degree of objective risk from the peril of fire highest? Town A Town B Town C Town D Homes 10,000
10,000 1,000 10,000 Averages losses .02 .08 .01 .03 Upper loss range 300 550 12 300 Lower loss range
110 350 7 180
Answer:
Town A
Question:
4. A peril is a condition that increases the chance of a loss the cause of a loss the probability that a loss will
occur None of the above
Answer:
the cause of a loss
Question:
5. The premature death of an individual is an example of a speculative risk physical hazard attitudinal risk
nondiversifiable risk
Answer:
None of the above answers are correct (pure risk)
Question:
6. The information given pertains to a company that owns a fleet of delivery vehicles. What is the degree
of objective risk (expressed as a percentage) pertaining to collision losses? Number of delivery vehicles
1,000 Average losses per year 0.025 Upper loss range 28 Lower loss range 20 10% 51% 25% 44% 32%
Answer:
32%
, Question:
7. A __________ is the risk of financial loss from a lawsuit or other negligence claim property risk social
risk political risk liability risk health risk
Answer:
liability risk
Question:
8. Which of the following statements are true regarding the risk manager (or CRO) of a firm? l. The risk
manager influences many aspects of a firm operations, including profitability, the implementation of safety
programs, and insurance purchases. ll. It is not necessary for the risk manager to have any technical
expertise of loss control measures.
Answer:
l only
Question:
9. ABC Insurance company plans to sell homeowners insurance in five western states. ABC expects that 8
homeowners out of every 100, on average, will report claims each year. The variation between the rate of
loss that ABC expects to occur and the rate of loss that actually does occur is called subjective risk
subjective probability objective risk objective probability None of the above
Answer:
objective risk
Question:
10. A coordinated ERM treatment should result in all of the following changes except: An increase in cost
predictability Reduced cash flow volatility Increased earnings volatility The creation of detailed awareness
of risk scenarios and their potential impacts Decreased risk-based expenses
Answer:
Increased earnings volatility
Question:
11. All of the following are challenges to implementing an enterprise risk management program except:
Lack of support from senior management Excessive willingness to invest capital into risk management
activities Unclear responsibilities for implementation Lack of common language regarding risk Lack of
leadership skills required for implementation
Answer:
Excessive willingness to invest capital into risk management activities
Question:
12. Which of the following statements is(are) true? l. Traditional risk management typically focuses on
pure, hazard risk ll. Enterprise risk management largely ignores the correlation of risk
Answer:
l only
Question:
13. The CRO of ABC Corp. has identified a loss exposure of marginal consequences as having a very
likely chance of occurring. What is the expected impact of this loss exposure on ABC Corp.? Excessively
high High Moderate Low Excessively low
