RMI 3011 Exam 1 Key Terms and
Concepts Review Question and answers
rated A+
Risk - correct answer ✔Uncertainty concerning the occurrence of a loss
Loss Exposure - correct answer ✔any situation or circumstance in which a
loss is possible, regardless of whether a loss occurs
Probability of 0 - correct answer ✔there's no risk, the event will NOT happen
Probability of 1 - correct answer ✔the event WILL happen, no risk but rather
plan for it to happen
Chance of Loss - correct answer ✔the probability that an event will occur
Objective Probability - correct answer ✔the long-run relative frequency of an
event based on the assumption of an infinite number of observations and of
no change in the underlying conditions
Determining Objective Probability - correct answer ✔Two ways: deductive
reasoning and inductive reasoning
Subjective Probability - correct answer ✔the individual's personal estimate of
the chance of loss
, Pure Risk - correct answer ✔a situation in which there are only the
possibilities of: no change or loss (neutral or adverse)
Speculative Risk - correct answer ✔a situation in which either profit or loss is
possible (i.e. investing in stocks has possibility of no change, increase, or
decrease)
Static Risk - correct answer ✔unchanging; risk has/will always exist (i.e.
natural disasters)
Dynamic Risk - correct answer ✔changing; risks created by society (i.e.
credit cards)
Fundamental (Non-diversifiable) Risk - correct answer ✔systematic; a risk
that affects the entire economy, large numbers of people, or groups within the
economy
Particular (Diversifiable) Risk - correct answer ✔non-systematic; a risk that
affects only individuals or small groups
Objective Risk (Degree of Risk) - correct answer ✔the relative variation of
actual loss from expected loss
Law of Large Numbers - correct answer ✔states that as the number of
exposure units increases, the more closely the actual loss experience will
approach the expected loss experience
Subjective Risk - correct answer ✔uncertainty based on a person's state of
mind or personal assessment
Concepts Review Question and answers
rated A+
Risk - correct answer ✔Uncertainty concerning the occurrence of a loss
Loss Exposure - correct answer ✔any situation or circumstance in which a
loss is possible, regardless of whether a loss occurs
Probability of 0 - correct answer ✔there's no risk, the event will NOT happen
Probability of 1 - correct answer ✔the event WILL happen, no risk but rather
plan for it to happen
Chance of Loss - correct answer ✔the probability that an event will occur
Objective Probability - correct answer ✔the long-run relative frequency of an
event based on the assumption of an infinite number of observations and of
no change in the underlying conditions
Determining Objective Probability - correct answer ✔Two ways: deductive
reasoning and inductive reasoning
Subjective Probability - correct answer ✔the individual's personal estimate of
the chance of loss
, Pure Risk - correct answer ✔a situation in which there are only the
possibilities of: no change or loss (neutral or adverse)
Speculative Risk - correct answer ✔a situation in which either profit or loss is
possible (i.e. investing in stocks has possibility of no change, increase, or
decrease)
Static Risk - correct answer ✔unchanging; risk has/will always exist (i.e.
natural disasters)
Dynamic Risk - correct answer ✔changing; risks created by society (i.e.
credit cards)
Fundamental (Non-diversifiable) Risk - correct answer ✔systematic; a risk
that affects the entire economy, large numbers of people, or groups within the
economy
Particular (Diversifiable) Risk - correct answer ✔non-systematic; a risk that
affects only individuals or small groups
Objective Risk (Degree of Risk) - correct answer ✔the relative variation of
actual loss from expected loss
Law of Large Numbers - correct answer ✔states that as the number of
exposure units increases, the more closely the actual loss experience will
approach the expected loss experience
Subjective Risk - correct answer ✔uncertainty based on a person's state of
mind or personal assessment
