CPCU 552
CPCU 552 Exam Questions With Correct
Detailed Answers A+ Passed
1. Which one of the following is a major responsibility of corporate directors?
a) to perpetuate a competent board through regular elections
b) to manage investments and disbursements of the corporation's assets
c) to create the proper annual & interim reports for shareholders
d) to establish the procedures & operational goals for each department - ANS ✔ - a
2. Corporate directors are considered to have met their duty of care if they:
a) Discharge their responsibilities according to the same standards that an employee of
the organization would use
b) Act in good faith and in a manner they reasonably believe to be in the best interests
of the corporation
c) Conduct themselves in a manner that guarantee's the enterprise's profitability
d) Make informed decisions based upon their special business skills - ANS ✔ - b
3. Directors' and Officers' fiduciary duties include the duty of:
a) Trustworthiness
b) Reliability
c) Obedience
d) Credibility - ANS ✔ - c
4. A lawsuit brought by one or more shareholders in the name of the corporation is a:
a) Derivative lawsuit
b) Class action lawsuit
c) Fiduciary lawsuit
d) Retaliation lawsuit - ANS ✔ - a
5. A corporation's directors are:
a) Elected by the corporation's officers
b) Appointed by the corporation's officers
c) Elected by the corporation's shareholders
d) Appointed by the corporation's management - ANS ✔ - c
6. A typical securities class action complaint contains an allegation such as:
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a) Directors and officers have failed to fulfill legal duties owed to employees under the
Employee Retirement Income Security Act of 1974 (ERISA)
b) Directors and officers have violated state environmental statutes
c) Insiders have profitably sold their personal holdings in the company's shares while
the share price was artificially inflated
d) Directors and officers have used the corporate jet for personal use - ANS ✔ - c
7. A corporation owned by its shareholders is controlled by its:
a) Management
b) Board of Advisors
c) Proxies
d) Board of Directors - ANS ✔ - d
8. Directors and officers of a corporation owe special duties to the stockholders of that
corporation. Those duties include: the duty of care; the duty of loyalty; the duty of disclosure;
and the duty of obedience. What is the term used to describe these duties?
a) Legal
b) Moral
c) Fiduciary
d) Ethical - ANS ✔ - c
9. Although a corporation's directors and officers must exercise care when making decisions about
the running of the company, courts have held that they cannot be held liable for honest
mistakes. This latitude allowed by courts to officers and directors is called the:
a) Business judgment rule
b) Nonjudgmental rule
c) Due diligence rule
d) Honest mistake rule - ANS ✔ - a
10. Directors and officers are considered to have met their duty of care if they have met 2
standards. Which one of the following is one of these standards?
a) Maintaining and enforcing the corporate charter & bylaws.
b) Approve important financial matters & corporate reports
c) Act in a manner believed to be in the corporation's best interests
d) Be involved in establishing the goals & policies of the organization - ANS ✔ - c
11. Which one of the following is a fiduciary duty of directors and officers?
a) Duty of information
b) Duty of care
c) Duty of adherence
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d) Duty of consent - ANS ✔ - b
12. The director of a corporation has been named in a suit brought by a stockholder of the
corporation alleging a failure to correct inaccurate statements made within its prospectus. What
is the classification of the suit made:
a) Non-derivative suit
b) Civil suit
c) Derivative suit
d) Class action - ANS ✔ - a
13. Which one of the following is a distinguishing characteristic of a derivative suit?
a) Damages recovered, except for the expenses of bringing the suit, go directly to the
corporation.
b) It is brought by one or more individuals representing the interests of an entire group
of people.
c) Persons outside of the corporation may initiate such lawsuits.
d) Such lawsuits are made in the name of individual customers or employees. - ANS ✔ -
a
14. A common defense used to protect directors and officers against claims that allege a breach in
the duty of care is the:
a) Ultra vires rule
b) Securities & Exchange Act of 1934
c) Class-Action Fairness Act of 2005
d) Business judgment rule - ANS ✔ - d
15. A shareholder may bring a derivative suit against a director or officer for having ownership in a
competing business. This is a breach of their:
a) Loyalty
b) Obedience
c) Disclosure
d) Care - ANS ✔ - a
16. Jean is a director on the board of an apparel promotion company. Towards the company, Jean
owes a duty of:
a) Undivided time
b) Profitability
c) Divided loyalty
d) Undivided loyalty - ANS ✔ - d
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17. Under common law and the Securities & Exchange Act of 1934, no director or officer can sue
which one of the following types of information to buy or sell corporation stock?
a) Outsider information
b) Public information
c) Insider information
d) Quantitative information - ANS ✔ - c
18. Directors (& sometimes officers) owe a duty of loyalty to the:
a) Federal Securities and Exchange Commission
b) Employees that support the corporation they serve
c) Customers of the corporation they serve
d) Stockholders who elect them - ANS ✔ - d
19. Although a corporation may not want to settle any derivative suits out of court, why under
common law might such settlements not benefit the corporation?
a) The corporation would be considered to be the wrongdoer
b) No determination of wrongdoing is made
c) The results are not binding on all participants
d) The results are sealed and, thus, hidden from the stockholders - ANS ✔ - b
20. The director of a corporation has been named in a suit brought by a stockholder of the
corporation alleging a failure to correct inaccurate statements within its prospectus. The
stockholder filed suit in his own name. Which one of the following is the most likely classification
of the suit?
a) Non-derivative suit
b) Civil suit
c) Derivative suit
d) Class action - ANS ✔ - a
21. Tom, Bill, and Adam are the 3 largest shareholders in ABC Corporation. Recently, the price of
ABC's stock has dropped severely. Tom, Bill, and Adam decide to bring a suit in their own names
against the directors. In that suit, Tom, Bill, and Adam allege that the directors failed to review
the company's financial statements and that they also failed to properly monitor the company's
affairs. The suit being brought by Tom, Bill & Adam is referred to as:
a) Derivative suit
b) Nuisance suit
c) Unnecessary suit
d) Non-derivative suit - ANS ✔ - d
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CPCU 552
©®
CPCU 552 Exam Questions With Correct
Detailed Answers A+ Passed
1. Which one of the following is a major responsibility of corporate directors?
a) to perpetuate a competent board through regular elections
b) to manage investments and disbursements of the corporation's assets
c) to create the proper annual & interim reports for shareholders
d) to establish the procedures & operational goals for each department - ANS ✔ - a
2. Corporate directors are considered to have met their duty of care if they:
a) Discharge their responsibilities according to the same standards that an employee of
the organization would use
b) Act in good faith and in a manner they reasonably believe to be in the best interests
of the corporation
c) Conduct themselves in a manner that guarantee's the enterprise's profitability
d) Make informed decisions based upon their special business skills - ANS ✔ - b
3. Directors' and Officers' fiduciary duties include the duty of:
a) Trustworthiness
b) Reliability
c) Obedience
d) Credibility - ANS ✔ - c
4. A lawsuit brought by one or more shareholders in the name of the corporation is a:
a) Derivative lawsuit
b) Class action lawsuit
c) Fiduciary lawsuit
d) Retaliation lawsuit - ANS ✔ - a
5. A corporation's directors are:
a) Elected by the corporation's officers
b) Appointed by the corporation's officers
c) Elected by the corporation's shareholders
d) Appointed by the corporation's management - ANS ✔ - c
6. A typical securities class action complaint contains an allegation such as:
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a) Directors and officers have failed to fulfill legal duties owed to employees under the
Employee Retirement Income Security Act of 1974 (ERISA)
b) Directors and officers have violated state environmental statutes
c) Insiders have profitably sold their personal holdings in the company's shares while
the share price was artificially inflated
d) Directors and officers have used the corporate jet for personal use - ANS ✔ - c
7. A corporation owned by its shareholders is controlled by its:
a) Management
b) Board of Advisors
c) Proxies
d) Board of Directors - ANS ✔ - d
8. Directors and officers of a corporation owe special duties to the stockholders of that
corporation. Those duties include: the duty of care; the duty of loyalty; the duty of disclosure;
and the duty of obedience. What is the term used to describe these duties?
a) Legal
b) Moral
c) Fiduciary
d) Ethical - ANS ✔ - c
9. Although a corporation's directors and officers must exercise care when making decisions about
the running of the company, courts have held that they cannot be held liable for honest
mistakes. This latitude allowed by courts to officers and directors is called the:
a) Business judgment rule
b) Nonjudgmental rule
c) Due diligence rule
d) Honest mistake rule - ANS ✔ - a
10. Directors and officers are considered to have met their duty of care if they have met 2
standards. Which one of the following is one of these standards?
a) Maintaining and enforcing the corporate charter & bylaws.
b) Approve important financial matters & corporate reports
c) Act in a manner believed to be in the corporation's best interests
d) Be involved in establishing the goals & policies of the organization - ANS ✔ - c
11. Which one of the following is a fiduciary duty of directors and officers?
a) Duty of information
b) Duty of care
c) Duty of adherence
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d) Duty of consent - ANS ✔ - b
12. The director of a corporation has been named in a suit brought by a stockholder of the
corporation alleging a failure to correct inaccurate statements made within its prospectus. What
is the classification of the suit made:
a) Non-derivative suit
b) Civil suit
c) Derivative suit
d) Class action - ANS ✔ - a
13. Which one of the following is a distinguishing characteristic of a derivative suit?
a) Damages recovered, except for the expenses of bringing the suit, go directly to the
corporation.
b) It is brought by one or more individuals representing the interests of an entire group
of people.
c) Persons outside of the corporation may initiate such lawsuits.
d) Such lawsuits are made in the name of individual customers or employees. - ANS ✔ -
a
14. A common defense used to protect directors and officers against claims that allege a breach in
the duty of care is the:
a) Ultra vires rule
b) Securities & Exchange Act of 1934
c) Class-Action Fairness Act of 2005
d) Business judgment rule - ANS ✔ - d
15. A shareholder may bring a derivative suit against a director or officer for having ownership in a
competing business. This is a breach of their:
a) Loyalty
b) Obedience
c) Disclosure
d) Care - ANS ✔ - a
16. Jean is a director on the board of an apparel promotion company. Towards the company, Jean
owes a duty of:
a) Undivided time
b) Profitability
c) Divided loyalty
d) Undivided loyalty - ANS ✔ - d
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17. Under common law and the Securities & Exchange Act of 1934, no director or officer can sue
which one of the following types of information to buy or sell corporation stock?
a) Outsider information
b) Public information
c) Insider information
d) Quantitative information - ANS ✔ - c
18. Directors (& sometimes officers) owe a duty of loyalty to the:
a) Federal Securities and Exchange Commission
b) Employees that support the corporation they serve
c) Customers of the corporation they serve
d) Stockholders who elect them - ANS ✔ - d
19. Although a corporation may not want to settle any derivative suits out of court, why under
common law might such settlements not benefit the corporation?
a) The corporation would be considered to be the wrongdoer
b) No determination of wrongdoing is made
c) The results are not binding on all participants
d) The results are sealed and, thus, hidden from the stockholders - ANS ✔ - b
20. The director of a corporation has been named in a suit brought by a stockholder of the
corporation alleging a failure to correct inaccurate statements within its prospectus. The
stockholder filed suit in his own name. Which one of the following is the most likely classification
of the suit?
a) Non-derivative suit
b) Civil suit
c) Derivative suit
d) Class action - ANS ✔ - a
21. Tom, Bill, and Adam are the 3 largest shareholders in ABC Corporation. Recently, the price of
ABC's stock has dropped severely. Tom, Bill, and Adam decide to bring a suit in their own names
against the directors. In that suit, Tom, Bill, and Adam allege that the directors failed to review
the company's financial statements and that they also failed to properly monitor the company's
affairs. The suit being brought by Tom, Bill & Adam is referred to as:
a) Derivative suit
b) Nuisance suit
c) Unnecessary suit
d) Non-derivative suit - ANS ✔ - d
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