CPCU 500 Final Practice UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Risk involves The possibility of a negative outcome. Possibility means - CORRECT
ANSWER - That an outcome may or may not occur.
Probabilities are stated as decimal figure, a percentage, or a - CORRECT ANSWER - Fraction
To understand risk, one needs to know the probability of an outcome or event occurring. Which
one of the following statements is correct with respect to probability? - CORRECT
ANSWER - It can be used to decide which activities to undertake.
The statement, "There is a five percent chance that John will be injured in an automobile
accident while driving to work tomorrow," is an example of - CORRECT ANSWER -
Quantifying risk
One of the elements of risk is uncertainty. Which one of the following best describes the
uncertainty that risk involves? - CORRECT ANSWER - Uncertainty as to the type and timing
of an outcome.
In the context of risk, the chance of being injured while driving to and from work, loading a
truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all
examples of - CORRECT ANSWER - Possibilities
Which one of the following is measurable and quantifies risk? - CORRECT ANSWER -
Probability
Risk can be classified as pure or speculative. Which one of the following is the best example of a
speculative risk? - CORRECT ANSWER - Investing in shares of stock.
,Classifying risk appropriately can help in managing risk. Which one of the following statements
is correct with respect to the classification of risk. - CORRECT ANSWER - A pure risk is a
chance of loss or no loss, but no chance of gain.
Risk can be classified as subjective or objective. Which one of the following statements is
correct wit respect to these risk classifications? - CORRECT ANSWER - Subjective risk can
exist even where objective risk does not.
Which one of the following statements is accurate regarding pure and speculative risks? -
CORRECT ANSWER - Every business venture involves speculative risks.
Regarding diversifiable and nondiversifiable risk, which one of the following statements is
accurate? - CORRECT ANSWER - Systemic risks are generally nondiversifiable.
Classifying the various types of risk can help in assessing, controlling, and financing risk as part
of the risk management process. Which one of the following statements is true regarding the
typical classifications of risk? - CORRECT ANSWER - Classifications of risk can help with
controlling and financing risk.
Insurance deals primarily with - CORRECT ANSWER - Pure risks
One approach to categorizing risks involves dividing risks into risk quadrants. The risks
categorized as hazards are - CORRECT ANSWER - Traditionally managed by risk
management professionals.
The focus of risk quadrants is different from the focus of risk classifications. While the
classifications of risk focus on some aspect of risk itself, the four quadrants of risk focus on -
CORRECT ANSWER - The source of risk and who has traditionally managed them.
Risk can be classified as divesifiable or nondiversifiable. Which one of the following statements
is true with respect to this type of risk classification? - CORRECT ANSWER - Diversifiable
risks tend to be correlated so they can be managed through diversification or spread of risk.
, Which one of the following is a main theoretical concept that explains how traditional risk
management works? - CORRECT ANSWER - Silo approach.
Which one of the following statements is true regarding enterprise risk management (ERM)? -
CORRECT ANSWER - The ERM framework encompasses all stakeholders in the
organization.
Which one of the following is usually the single largest impediment to successful
implementation of enterprise risk management (ERM)? - CORRECT ANSWER - The
traditional organizational culture.
The single largest impediment to successful implementation of an enterprise risk management
(ERM) program is - CORRECT ANSWER - Traditional organizational culture with
entrenched risk silos.
Three main theoretical concepts explain how enterprise risk management (ERM) works. One
theoretical concept considers not only the combination of individual risks but also their
interactions. This theoretical concept is - CORRECT ANSWER - The portfolio theory.
Three main theoretical concepts explain why ERM works. Which one of the following correctly
lists those three concepts? - CORRECT ANSWER - Interdependency, correlation, and
portfolio theory.
A risk management plan that considers all of the risks that an organization faces, including
operational, financial, and strategic risks, is called - CORRECT ANSWER - An enterprise risk
management plan.
The concept of correlation, in the context of why enterprise risk management works - CORRECT
ANSWER - Is the proposition that correlation increases risk while uncorrelated risks can
reduce risk.
ACTUAL Exam Questions and CORRECT
Answers
Risk involves The possibility of a negative outcome. Possibility means - CORRECT
ANSWER - That an outcome may or may not occur.
Probabilities are stated as decimal figure, a percentage, or a - CORRECT ANSWER - Fraction
To understand risk, one needs to know the probability of an outcome or event occurring. Which
one of the following statements is correct with respect to probability? - CORRECT
ANSWER - It can be used to decide which activities to undertake.
The statement, "There is a five percent chance that John will be injured in an automobile
accident while driving to work tomorrow," is an example of - CORRECT ANSWER -
Quantifying risk
One of the elements of risk is uncertainty. Which one of the following best describes the
uncertainty that risk involves? - CORRECT ANSWER - Uncertainty as to the type and timing
of an outcome.
In the context of risk, the chance of being injured while driving to and from work, loading a
truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all
examples of - CORRECT ANSWER - Possibilities
Which one of the following is measurable and quantifies risk? - CORRECT ANSWER -
Probability
Risk can be classified as pure or speculative. Which one of the following is the best example of a
speculative risk? - CORRECT ANSWER - Investing in shares of stock.
,Classifying risk appropriately can help in managing risk. Which one of the following statements
is correct with respect to the classification of risk. - CORRECT ANSWER - A pure risk is a
chance of loss or no loss, but no chance of gain.
Risk can be classified as subjective or objective. Which one of the following statements is
correct wit respect to these risk classifications? - CORRECT ANSWER - Subjective risk can
exist even where objective risk does not.
Which one of the following statements is accurate regarding pure and speculative risks? -
CORRECT ANSWER - Every business venture involves speculative risks.
Regarding diversifiable and nondiversifiable risk, which one of the following statements is
accurate? - CORRECT ANSWER - Systemic risks are generally nondiversifiable.
Classifying the various types of risk can help in assessing, controlling, and financing risk as part
of the risk management process. Which one of the following statements is true regarding the
typical classifications of risk? - CORRECT ANSWER - Classifications of risk can help with
controlling and financing risk.
Insurance deals primarily with - CORRECT ANSWER - Pure risks
One approach to categorizing risks involves dividing risks into risk quadrants. The risks
categorized as hazards are - CORRECT ANSWER - Traditionally managed by risk
management professionals.
The focus of risk quadrants is different from the focus of risk classifications. While the
classifications of risk focus on some aspect of risk itself, the four quadrants of risk focus on -
CORRECT ANSWER - The source of risk and who has traditionally managed them.
Risk can be classified as divesifiable or nondiversifiable. Which one of the following statements
is true with respect to this type of risk classification? - CORRECT ANSWER - Diversifiable
risks tend to be correlated so they can be managed through diversification or spread of risk.
, Which one of the following is a main theoretical concept that explains how traditional risk
management works? - CORRECT ANSWER - Silo approach.
Which one of the following statements is true regarding enterprise risk management (ERM)? -
CORRECT ANSWER - The ERM framework encompasses all stakeholders in the
organization.
Which one of the following is usually the single largest impediment to successful
implementation of enterprise risk management (ERM)? - CORRECT ANSWER - The
traditional organizational culture.
The single largest impediment to successful implementation of an enterprise risk management
(ERM) program is - CORRECT ANSWER - Traditional organizational culture with
entrenched risk silos.
Three main theoretical concepts explain how enterprise risk management (ERM) works. One
theoretical concept considers not only the combination of individual risks but also their
interactions. This theoretical concept is - CORRECT ANSWER - The portfolio theory.
Three main theoretical concepts explain why ERM works. Which one of the following correctly
lists those three concepts? - CORRECT ANSWER - Interdependency, correlation, and
portfolio theory.
A risk management plan that considers all of the risks that an organization faces, including
operational, financial, and strategic risks, is called - CORRECT ANSWER - An enterprise risk
management plan.
The concept of correlation, in the context of why enterprise risk management works - CORRECT
ANSWER - Is the proposition that correlation increases risk while uncorrelated risks can
reduce risk.
