ARM 54 PRACTICE EXAM QUESTIONS
AND ANSWERS A+ GRADED.
If an insurer wants to determine the numerical value for a known target
variable, it is most likely to use
Correct Answer -Regression
Which one of the following is an example of exploratory data analysis?
Correct Answer -Correlation matrix
William works in the special investigative unit for Millstone Insurance. He
has been working on a group of auto liability claims with multiple fraud
triggers. William was able to trace links between the web pages of the
lawyers and several medical care providers involved in the claims. Which
one of the following analytical techniques is William using?
Correct Answer -Social network analysis
Which one of the following correctly describes lift in evaluating a predictive
model's effectiveness?
Correct Answer -Lift is the percentage of a model's positive predictions
divided by the percentage expected by chance
Which one of the following types of workers compensation claims are the
most difficult for insurers to identify at the time of first report?
Correct Answer -Potentially complex claims
,Which one of the following explains why a computer recursively applies a
model?
Correct Answer -To analyze different splits in the values of attributes
An insurer wants to determine the complexity of a claim at the time of first
report. Which one of the following is an important step after identifying the
attributes of complex claims?
Correct Answer -Ranking the attributes according to their relative
information gain
The process by which the present value is calculated is called
Correct Answer -Discounting
Sharon wants to replace her computer in three years. She estimates that a
new computer will cost $2,500. In order to determine the amount of money
Sharon must invest today at a given rate to have $2,500 at the end of three
years, she must calculate the
Correct Answer -Present value of the amount needed in the future
Which one of the following statements is true with regard to a
manufacturing company using call options to hedge the cost of a raw
material?
Correct Answer -Using call options may actually reduce the profitability of a
transaction
Helen is a member of ABC Insurance Company's board of directors. She
chairs the audit committee and is a member of the risk management
committee. Helen ordered a review of company policies and procedures to
,make sure ABC managers were complying with company guidelines. This
review found that one person could write checks for claims under $500
without a second person signing-off on the payment. Although no losses
occurred, the small claims payment procedure was modified so that a
second person had to approve issuance of the check. The review that Helen
ordered is called
Correct Answer -An internal audit
Devin chairs the audit committee of XYZ Insurance Company's board of
directors. He is the retired chief financial officer of LMN Insurance
Company. The other members of XYZ's board, other than the chairman,
know little about insurance company accounting. At a recent board
meeting, Devin challenged the vice president of accounting and finance,
saying, "Can you provide more background in your report to the board? I
understand why the ratio of net premiums written to surplus is important,
but not everyone on the board may grasp the significance. Please be a little
more cognizant of your audience when reporting to the board." Which
communications goal was Devin attempting to assure?
Correct Answer -Transparency
Which one of the following requires the CEO and CFO of a publicly-traded
company to certify that financial statements are correct and requires that
public companies report operational risk to the company's stakeholders?
Correct Answer -The Sarbanes-Oxley Act
All of the following are correct with respect to the recognition of expected
losses in the cash flow analysis of an investment proposal, EXCEPT:
Correct Answer -Cash flow analysis adds the cost of expected losses to a
proposal's initial investment in evaluating the net cash flow
, A company's board of directors has several committees, including an audit
committee. The primary role of the audit committee is to
Correct Answer -Assure compliance with financial regulations and legal
requirements
Amanda is chief legal counsel at Insurance Company. The company's board
wanted to make sure that the company's internal controls were current and
working properly and they asked Amanda to review internal controls in each
functional area. To test the system, Amanda had three fictitious claims
submitted to the system for payment. Because the claims were not
sufficiently documented, they were not paid and were flagged for
investigation. Which component of the COSO framework for internal
controls did Amada test?
Correct Answer -Monitoring
Which one of the following groups of individuals within an organization is
responsible for establishing effective internal controls to monitor risk?
Correct Answer -Management
The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) grouped internal control objectives into three categories. One
category of objectives deals with how well an organization meets numerous
local, national, and international laws. This category of objectives is
Correct Answer -Compliance objectives
The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) framework list five interrelated components of internal controls.
Which one of the following components forms the basis for carrying out all
AND ANSWERS A+ GRADED.
If an insurer wants to determine the numerical value for a known target
variable, it is most likely to use
Correct Answer -Regression
Which one of the following is an example of exploratory data analysis?
Correct Answer -Correlation matrix
William works in the special investigative unit for Millstone Insurance. He
has been working on a group of auto liability claims with multiple fraud
triggers. William was able to trace links between the web pages of the
lawyers and several medical care providers involved in the claims. Which
one of the following analytical techniques is William using?
Correct Answer -Social network analysis
Which one of the following correctly describes lift in evaluating a predictive
model's effectiveness?
Correct Answer -Lift is the percentage of a model's positive predictions
divided by the percentage expected by chance
Which one of the following types of workers compensation claims are the
most difficult for insurers to identify at the time of first report?
Correct Answer -Potentially complex claims
,Which one of the following explains why a computer recursively applies a
model?
Correct Answer -To analyze different splits in the values of attributes
An insurer wants to determine the complexity of a claim at the time of first
report. Which one of the following is an important step after identifying the
attributes of complex claims?
Correct Answer -Ranking the attributes according to their relative
information gain
The process by which the present value is calculated is called
Correct Answer -Discounting
Sharon wants to replace her computer in three years. She estimates that a
new computer will cost $2,500. In order to determine the amount of money
Sharon must invest today at a given rate to have $2,500 at the end of three
years, she must calculate the
Correct Answer -Present value of the amount needed in the future
Which one of the following statements is true with regard to a
manufacturing company using call options to hedge the cost of a raw
material?
Correct Answer -Using call options may actually reduce the profitability of a
transaction
Helen is a member of ABC Insurance Company's board of directors. She
chairs the audit committee and is a member of the risk management
committee. Helen ordered a review of company policies and procedures to
,make sure ABC managers were complying with company guidelines. This
review found that one person could write checks for claims under $500
without a second person signing-off on the payment. Although no losses
occurred, the small claims payment procedure was modified so that a
second person had to approve issuance of the check. The review that Helen
ordered is called
Correct Answer -An internal audit
Devin chairs the audit committee of XYZ Insurance Company's board of
directors. He is the retired chief financial officer of LMN Insurance
Company. The other members of XYZ's board, other than the chairman,
know little about insurance company accounting. At a recent board
meeting, Devin challenged the vice president of accounting and finance,
saying, "Can you provide more background in your report to the board? I
understand why the ratio of net premiums written to surplus is important,
but not everyone on the board may grasp the significance. Please be a little
more cognizant of your audience when reporting to the board." Which
communications goal was Devin attempting to assure?
Correct Answer -Transparency
Which one of the following requires the CEO and CFO of a publicly-traded
company to certify that financial statements are correct and requires that
public companies report operational risk to the company's stakeholders?
Correct Answer -The Sarbanes-Oxley Act
All of the following are correct with respect to the recognition of expected
losses in the cash flow analysis of an investment proposal, EXCEPT:
Correct Answer -Cash flow analysis adds the cost of expected losses to a
proposal's initial investment in evaluating the net cash flow
, A company's board of directors has several committees, including an audit
committee. The primary role of the audit committee is to
Correct Answer -Assure compliance with financial regulations and legal
requirements
Amanda is chief legal counsel at Insurance Company. The company's board
wanted to make sure that the company's internal controls were current and
working properly and they asked Amanda to review internal controls in each
functional area. To test the system, Amanda had three fictitious claims
submitted to the system for payment. Because the claims were not
sufficiently documented, they were not paid and were flagged for
investigation. Which component of the COSO framework for internal
controls did Amada test?
Correct Answer -Monitoring
Which one of the following groups of individuals within an organization is
responsible for establishing effective internal controls to monitor risk?
Correct Answer -Management
The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) grouped internal control objectives into three categories. One
category of objectives deals with how well an organization meets numerous
local, national, and international laws. This category of objectives is
Correct Answer -Compliance objectives
The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) framework list five interrelated components of internal controls.
Which one of the following components forms the basis for carrying out all
