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ARM 54 Practice Exam Questions With Correct
Answers 100% Verified.
Autumn Assurance Group has assets at fair value of $100 million.
The present value of Autumn's liabilities is $85 million. The market
value margin is $5 million. Using probability models, Autumn
determines that its VaR is $8 million because it expects to incur an
$8 million or greater loss of capital at a .5 percent probability over
a one-year period.
1. What is Autumn's MVS?
2. What is Autumn's economic capital?
3. Does Autumn have excess capital or a deficiency in capital? - Answer✔MVS = Fair value of
assets - (Present value of liabilities + Market value margin)
Autumn's MVS = $100 million - ($85 million + $5 million) = $10 million
Autumn's economic capital is $8 million. The VaR is $8 million at the threshold determined by
Autumn.
Autumn's MVS of $10 million is larger than its economic capital of $8 million. Therefore,
Autumn has excess capital. of $2 million.
Assume that the length of time a heating element can operate
safely conforms to a normal distribution with a mean of 5,000
hours and a standard deviation of 1,000 hours. If the element is
replaced after 5,000 hours, which one of the following represents
the chance that the heating element will become unsafe before
being replaced?
A: 70 percent
1
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 11:33AM. A+
B: 50 percent
C: 40 percent
D: 20 percent - Answer✔50 percent
Vandenberg 's risk manager uses regression analysis to
determine the relationship between Vandenberg's workers
compensation medical expenses (the dependent variable) and its
payroll (the independent variable). The formula for Vandenberg's
linear regression line is y = 5.20 + .098 (x). Next year's payroll is
estimated to equal $3,750,000. Based on this information what are
Vandenberg's estimated workers compensation medical expenses
next year?
A: $367,495
B: $367,500
C: $367,505
D: $375,520 - Answer✔C 367,505
Aligning risks with the organization's risk appetite defines - Answer✔tolerable uncertainty
The total cost incurred by an organization because of the possibility of accidental loss is the
organization's - Answer✔cost of risk
The concept of correlation, in the context of why enterprise risk management works, -
Answer✔Is the proposition that correlation increases risk while uncorrelated risks can reduce
risk.
Which one of the following provides a measure of the maximum potential damage associated
with an occurrence? - Answer✔exposure
Which one of the following types of risks can result in losses but not in any gains? -
Answer✔hazard risks
George works for a large company and part of his job is to monitor assets according to their
liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity
and rising fuel prices are having an adverse effect during tight economic markets. If George's
concerns were categorized as causes of loss according to the quadrants of risk, his concern
most directly relates to which one of the following types of risks? - Answer✔financial risks
2
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 11:33AM. A+
A company's board of directors has several committees, including an audit committee. The
primary role of the audit committee is to - Answer✔Assure compliance with financial
regulations and legal requirements.
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 - Answer✔Compliance objectives.
Recent trends in government regulations have instituted more formal requirements for the
board of directors of organizations. This is especially true for organizations involved in which
one of the following? - Answer✔Financial services
The practice of using an organization's limited internal audit resources in those areas with the
highest priority is called - Answer✔risk-based auditing
Risk reports should be focused on business objectives as well as compliance with regulatory
requirements. Reports should identify risks that are increasing or decreasing, risks that need
immediate attention, and risks that require further analysis to determine their eventual effect
on the organization. These characteristics of risk reporting demonstrate - Answer✔functionality
Which one of the following groups of individuals within an organization is responsible for
establishing effective internal controls to monitor risk? - Answer✔employees
Risk to an entity - apart from any action to alter either the likelihood or impact of the risk - is
known as - Answer✔Inherent risk.
The structure that supports the organization's risk management objectives and strategies is the
- Answer✔risk management framework
Integration of the management principles governing the organization with the risk
management process is - Answer✔risk governance
Be-Ne-Lux Insurance is an insurer operating in Belgium, the Netherlands, and Luxembourg. Be-
Ne-Lux is subject to the Solvency II standards. Company managers believed the company was
adequately financed, however it was determined that the company did not have adequate
assets based on the uncertainty of its operating performance. The standard that Be-Ne-Lux
failed to meet is - Answer✔risk-based capital
Which one of the following is a characteristic that differentiates big data from traditional data?
- Answer✔velocity
A predictive approach to data analytics involves - Answer✔Providing a method to be used
repeatedly to provide information.
3
ARM 54 Practice Exam Questions With Correct
Answers 100% Verified.
Autumn Assurance Group has assets at fair value of $100 million.
The present value of Autumn's liabilities is $85 million. The market
value margin is $5 million. Using probability models, Autumn
determines that its VaR is $8 million because it expects to incur an
$8 million or greater loss of capital at a .5 percent probability over
a one-year period.
1. What is Autumn's MVS?
2. What is Autumn's economic capital?
3. Does Autumn have excess capital or a deficiency in capital? - Answer✔MVS = Fair value of
assets - (Present value of liabilities + Market value margin)
Autumn's MVS = $100 million - ($85 million + $5 million) = $10 million
Autumn's economic capital is $8 million. The VaR is $8 million at the threshold determined by
Autumn.
Autumn's MVS of $10 million is larger than its economic capital of $8 million. Therefore,
Autumn has excess capital. of $2 million.
Assume that the length of time a heating element can operate
safely conforms to a normal distribution with a mean of 5,000
hours and a standard deviation of 1,000 hours. If the element is
replaced after 5,000 hours, which one of the following represents
the chance that the heating element will become unsafe before
being replaced?
A: 70 percent
1
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 11:33AM. A+
B: 50 percent
C: 40 percent
D: 20 percent - Answer✔50 percent
Vandenberg 's risk manager uses regression analysis to
determine the relationship between Vandenberg's workers
compensation medical expenses (the dependent variable) and its
payroll (the independent variable). The formula for Vandenberg's
linear regression line is y = 5.20 + .098 (x). Next year's payroll is
estimated to equal $3,750,000. Based on this information what are
Vandenberg's estimated workers compensation medical expenses
next year?
A: $367,495
B: $367,500
C: $367,505
D: $375,520 - Answer✔C 367,505
Aligning risks with the organization's risk appetite defines - Answer✔tolerable uncertainty
The total cost incurred by an organization because of the possibility of accidental loss is the
organization's - Answer✔cost of risk
The concept of correlation, in the context of why enterprise risk management works, -
Answer✔Is the proposition that correlation increases risk while uncorrelated risks can reduce
risk.
Which one of the following provides a measure of the maximum potential damage associated
with an occurrence? - Answer✔exposure
Which one of the following types of risks can result in losses but not in any gains? -
Answer✔hazard risks
George works for a large company and part of his job is to monitor assets according to their
liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity
and rising fuel prices are having an adverse effect during tight economic markets. If George's
concerns were categorized as causes of loss according to the quadrants of risk, his concern
most directly relates to which one of the following types of risks? - Answer✔financial risks
2
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 11:33AM. A+
A company's board of directors has several committees, including an audit committee. The
primary role of the audit committee is to - Answer✔Assure compliance with financial
regulations and legal requirements.
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 - Answer✔Compliance objectives.
Recent trends in government regulations have instituted more formal requirements for the
board of directors of organizations. This is especially true for organizations involved in which
one of the following? - Answer✔Financial services
The practice of using an organization's limited internal audit resources in those areas with the
highest priority is called - Answer✔risk-based auditing
Risk reports should be focused on business objectives as well as compliance with regulatory
requirements. Reports should identify risks that are increasing or decreasing, risks that need
immediate attention, and risks that require further analysis to determine their eventual effect
on the organization. These characteristics of risk reporting demonstrate - Answer✔functionality
Which one of the following groups of individuals within an organization is responsible for
establishing effective internal controls to monitor risk? - Answer✔employees
Risk to an entity - apart from any action to alter either the likelihood or impact of the risk - is
known as - Answer✔Inherent risk.
The structure that supports the organization's risk management objectives and strategies is the
- Answer✔risk management framework
Integration of the management principles governing the organization with the risk
management process is - Answer✔risk governance
Be-Ne-Lux Insurance is an insurer operating in Belgium, the Netherlands, and Luxembourg. Be-
Ne-Lux is subject to the Solvency II standards. Company managers believed the company was
adequately financed, however it was determined that the company did not have adequate
assets based on the uncertainty of its operating performance. The standard that Be-Ne-Lux
failed to meet is - Answer✔risk-based capital
Which one of the following is a characteristic that differentiates big data from traditional data?
- Answer✔velocity
A predictive approach to data analytics involves - Answer✔Providing a method to be used
repeatedly to provide information.
3
