CPCU 500 Questions and Answers Rated A+

CPCU 500 Questions and Answers Rated A+ Risk the uncertainty about outcomes, with the possibility that some of the outcomes can be negative. Quantified by knowing the probability of the possible outcomes Probability the likelihood that an outcome or event will occur. Probabilities are stated as a decimal figure, a percentage, or a fraction. What are the 2 elements associated with risk? uncertainty of outcome + possibility of negative outcome Pure Risk a chance of loss or no loss, but no chance of gain. Speculative Risk a chance of gain or loss (investment). Price Risk the uncertainty over the size of cash flows resulting from possible changes in the cost of raw materials and other inputs (lumber, gas, or electricity) Credit Risk the risk that customers and other debtors will fail to make promised payments. Distinguish Diversifiable vs. Nondiversifiable Risk Diversifiable risks can be managed by spreading (such as purchasing multiple businesses). Nondiversifiable risks are correlated so that their gains or losses tend to occur simultaneously rather than randomly. What are the 4 quadrants of risk? Hazard, Operational, Financial, and Strategic risk Hazard a condition that increases the frequency or severity of a loss. What are the classifications of risk? pure vs. speculative. subjective vs. objective. diversifiable vs. nondiversifiable. The quadrants of risk focus on... the source of risk and who has traditionally managed it The classifications of risk focus on... some aspect of the risk itself 3 components of Financial consequences or risk? Expected cost of losses or gains. Expenditures on risk mgmt. Cost of residual uncertainty. Residual Uncertainty the amount of risk that remains after individuals or organizations implement their risk mgmt plans. (need to study more) Risk Management any effort to economically deal with uncertainty of outcomes (risk). Enterprise Risk Management (ERM) is an approach to managing all of an org's key risks and opportunities, pure and speculative, with the intent of maximizing the org's value. Loss Exposure any condition or