CPCU 500- Assignment 2 Questions & Answers

CPCU 500- Assignment 2 Questions & Answers The fundamental purpose of a risk management framework is to A. Reduce the cost of risk. B. Define and eliminate potential losses. C. Maximize profits for all stakeholders. D. Integrate risk management throughout the organization. D. Integrate risk management throughout the organization. Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications? A. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their decisions. B. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than the objective risk. C. Subjective risk can exist even where objective risk does not. D. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or things. C. Subjective risk can exist even where objective risk does not. Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:00 / 0:15 Full screen Brainpower Read More During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk? A. The software upgrade B. The warehouse refurbishment C. The two new trucks D. The new production machine D. The new production machine In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and personal auto insurance to the employees of its largest business lines account. Which one of the following risk measures is most likely to increase as a result of this marketing decision? A. Time horizon B. Volatility C. Correlation D. Consequences C. Correlation An organization must meet the standard of care that it owes to others in order to ensure that A. Post-loss goals are in place. B. Contracts are not breached. C. Legal obligations are satisfied. D. Operations are efficient. C. Legal obligations are satisfied. Which of the following risk management program goals is an essential goal for all public entities? A. Earning stability B. Continuity of operations C. Survival D. Growth B. Continuity of operations Which one of the following statements is true regarding the basic measures that apply to risk management? A. Hedging is a risk management strategy that can reduce the risk of correlation. B. Risk increases as volatility decreases. C. Longer time horizons are generally less risky that shorter ones. D. Consequences measure the degree to which an occurrence could positively or negatively affect an organization. D. Consequences measure the degree to which an occurrence could positively or negatively affect an organization. Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as A. An operational risk. B. A strategic risk. C. A hazard risk. D. A financial risk. B. A strategic risk. Which one of the following risk management program goals enhances an organization's reputation? A. Economy of operations B. Tolerable uncertainty C. Survival D. Social responsibility D. Social responsibility Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? A. Systemic risks are generally diversifiable. B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. C. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks. D. Inflation, unemployment and natural disasters, such as hurricanes, are examples of diversifiable risk. B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors? A. Eliminate downside risk B. Reduce the deterrent effects of hazard risks C. Social responsibility D. Anticipate and recognize emerging risks B. Reduce the deterrent effects of hazard risks George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? A. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal. B. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down. C. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht. D. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit. B. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down. Which one of the following provides a measure of the maximum potential damage associated with an occurrence? A. Duration B. Exposure C. Maximum probable loss D. Underwriting risk B. Exposure Which one of the following types of risks can result in losses but not in any gains? A. Hazard risks B. Financial risks C. Speculative risks D. Strategic risks A. Hazard risks