CPCU 500 MOCK EXAM SHEET 2025/2026 QUESTIONS
WITH SOLUTIONS RATED A+
✔✔Calculating probabilities of losses equal to or less than a given number of losses or
dollar amounts of losses individually and cumulatively can be helpful in selecting... -
✔✔retention levels
✔✔Calculating individual and cumulative probabilities of losses equal to or greater than
a given number of losses or dollar amounts can help in selecting... - ✔✔upper limits of
insurance coverage
✔✔The variation among values in a distribution. - ✔✔Dispersion
✔✔Describes the extent to which the distribution is spread out rather than concentrated
around the expected value - ✔✔Dispersion
✔✔The less dispersion around the distribution's expected value, the greater the
likelihood that... - ✔✔actual results will fall w/in a given range of that expected value
✔✔Less dispersion means - ✔✔less uncertainty about the expected outcomes
✔✔The more dispersed a distribution the .... the distribution and the larger the ... -
✔✔The more dispersed a distribution the flatter the shape and the large the standard
deviation
✔✔Standard deviation is the average of the ... between the values in a distribution and
the .... of that distribution - ✔✔average of the differences (deviations) between the
values in a distribution and the expected value (mean) of that distribution
✔✔Steps to calculate the standard deviation: - ✔✔1) Calculate the distributions
expected value (mean)
2) Subtract the expected value from each distribution value to find the differences
3) Square each of the resulting differences
4) Multiply each square by the probability associated with the value
5) Sum the resulting products
6) Find the square root of the sum
✔✔The coefficient of variation is used to determine - ✔✔whether a particular loss
control measure has had losses more or less predictable (whether the distribution is
more or less variable)
✔✔The distribution with the largest coefficient of variation has.. - ✔✔the greatest
relative variability
, ✔✔The higher the variability within a distribution, the more difficult it is to accurately
forecast... - ✔✔an individual outcome
✔✔An organization's premises and operations liability losses have a severity distribution
with a mean of $10,000 and a standard deviation of $15,000. What is the coefficient of
variation for this distribution? - ✔✔1.5
The coefficient of variation is calculated by:
Std dev. / mean
✔✔When should one consider using avoidance to manage a loss exposure? - ✔✔use
avoidance with the expected value of losses from an activity outweighs the expected
benefits of that activity
✔✔Risk control technique that reduces the frequency of a particular loss - ✔✔Loss
prevention
✔✔Identify which risk control technique is being used: Pressure relief valves on a boiler
are intended to prevent explosions by keeping pressure in the boiler from reaching an
unsafe level - ✔✔The valve is a type of loss prevention, not avoidance b/c the boiler
explosion is still possible just not as likely.
✔✔Risk control technique that reduces the severity of a particular loss - ✔✔Loss
reduction
✔✔The intent of separation is a risk control measure - ✔✔reduce the severity of an
individual loss at a single location, however this may increase loss frequency b/c there
are multiple units exposed to a loss
✔✔Diversification is more commonly applied to managing .... risks, rather than .... risks -
✔✔business risks rather than hazard risks
✔✔Installing a guard on a machine to protect against employee's injuring their hands is
an example of which risk control technique? - ✔✔Loss prevention b/c it reduces the
frequency of a loss
✔✔A manufacturer relies on supplies of a key raw material which it obtains from a
particular supplier. The manufacturer makes arrangements with a second supplier to
provide the raw material if the primary supplier is unable to do so. The manufacturer is
practicing which one of the following risk control techniques? - ✔✔Duplication
✔✔Which risk control technique will reduce loss severity and make losses more
predictable, without increasing loss frequency? - ✔✔Duplication
WITH SOLUTIONS RATED A+
✔✔Calculating probabilities of losses equal to or less than a given number of losses or
dollar amounts of losses individually and cumulatively can be helpful in selecting... -
✔✔retention levels
✔✔Calculating individual and cumulative probabilities of losses equal to or greater than
a given number of losses or dollar amounts can help in selecting... - ✔✔upper limits of
insurance coverage
✔✔The variation among values in a distribution. - ✔✔Dispersion
✔✔Describes the extent to which the distribution is spread out rather than concentrated
around the expected value - ✔✔Dispersion
✔✔The less dispersion around the distribution's expected value, the greater the
likelihood that... - ✔✔actual results will fall w/in a given range of that expected value
✔✔Less dispersion means - ✔✔less uncertainty about the expected outcomes
✔✔The more dispersed a distribution the .... the distribution and the larger the ... -
✔✔The more dispersed a distribution the flatter the shape and the large the standard
deviation
✔✔Standard deviation is the average of the ... between the values in a distribution and
the .... of that distribution - ✔✔average of the differences (deviations) between the
values in a distribution and the expected value (mean) of that distribution
✔✔Steps to calculate the standard deviation: - ✔✔1) Calculate the distributions
expected value (mean)
2) Subtract the expected value from each distribution value to find the differences
3) Square each of the resulting differences
4) Multiply each square by the probability associated with the value
5) Sum the resulting products
6) Find the square root of the sum
✔✔The coefficient of variation is used to determine - ✔✔whether a particular loss
control measure has had losses more or less predictable (whether the distribution is
more or less variable)
✔✔The distribution with the largest coefficient of variation has.. - ✔✔the greatest
relative variability
, ✔✔The higher the variability within a distribution, the more difficult it is to accurately
forecast... - ✔✔an individual outcome
✔✔An organization's premises and operations liability losses have a severity distribution
with a mean of $10,000 and a standard deviation of $15,000. What is the coefficient of
variation for this distribution? - ✔✔1.5
The coefficient of variation is calculated by:
Std dev. / mean
✔✔When should one consider using avoidance to manage a loss exposure? - ✔✔use
avoidance with the expected value of losses from an activity outweighs the expected
benefits of that activity
✔✔Risk control technique that reduces the frequency of a particular loss - ✔✔Loss
prevention
✔✔Identify which risk control technique is being used: Pressure relief valves on a boiler
are intended to prevent explosions by keeping pressure in the boiler from reaching an
unsafe level - ✔✔The valve is a type of loss prevention, not avoidance b/c the boiler
explosion is still possible just not as likely.
✔✔Risk control technique that reduces the severity of a particular loss - ✔✔Loss
reduction
✔✔The intent of separation is a risk control measure - ✔✔reduce the severity of an
individual loss at a single location, however this may increase loss frequency b/c there
are multiple units exposed to a loss
✔✔Diversification is more commonly applied to managing .... risks, rather than .... risks -
✔✔business risks rather than hazard risks
✔✔Installing a guard on a machine to protect against employee's injuring their hands is
an example of which risk control technique? - ✔✔Loss prevention b/c it reduces the
frequency of a loss
✔✔A manufacturer relies on supplies of a key raw material which it obtains from a
particular supplier. The manufacturer makes arrangements with a second supplier to
provide the raw material if the primary supplier is unable to do so. The manufacturer is
practicing which one of the following risk control techniques? - ✔✔Duplication
✔✔Which risk control technique will reduce loss severity and make losses more
predictable, without increasing loss frequency? - ✔✔Duplication
