CPCU 530
Probability is best defined as
The uncertainty about outcomes, some of which can be negative.
The possibility that something may occur.
The likelihood that an outcome or event will occur.
The negative outcome associated with risk. ANS: The likelihood that an outcome or event will occur.
Risk is a term that is regularly used and that is generally understood in context. As used in this
discussion, which one of the following is one of the two elements within the definition of risk?
Select one:
A. Uncertainty of outcome
B. Likelihood of injury or damage to property
C. Probability of financial loss
D. Opportunity for profit ANS: A. Uncertainty of outcome
Which one of the following is measurable and quantifies risk?
Select one:
A. Feasibility
B. Possibility
C. Probability
D. Uncertainty ANS: C. Probability
One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty
that risk involves?
Select one:
A. Uncertainty as to how to manage potential losses
,B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
D. Uncertainty as to whether insurance is available ANS: C. 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
Select one:
A. Possibilities.
B. Uncertainties.
C. Probabilities.
D. Losses. ANS: A. Possibilities.
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
Select one:
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
D. Indentifying hazards. ANS: A. Quantifying risk.
Probabilities are stated as a decimal figure, a percentage, or a
Select one:
A. Credibility factor.
B. Fraction.
C. Stated constant.
D. Dollar amount. ANS: 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?
Select one:
A. It is typically expressed verbally rather than numerically.
B. It can be used to decide which activities to undertake.
C. It verifies that risk is present, but does not quantify it.
D. It identifies what can be lost when a negative outcome occurs. ANS: B. It can be used to decide which
activities to undertake.
Risk involves the possibility of a negative outcome. Possibility means
Select one:
A. The likelihood of an event occurring.
B. That an outcome is unavoidable.
C. An identified and predictable outcome.
D. That an outcome may or may not occur. ANS: D. That an outcome may or may not occur.
An automobile owner faces a risk of loss from a possible collision. The auto will either suffer a collision
loss or not. If a collision occurs, there will be a financial loss. If there is no collision, the owner's financial
condition is unchanged. This is an example of what type of risk?
Pure
Speculative
Nondiversifiable
Subjective ANS: Pure
Pure risk ANS: A chance of loss or no loss, but no chance of gain.
, speculative risk ANS: A chance of loss, no loss, or gain.
credit risk ANS: The risk that customers or other creditors will fail to make promised payments as they
come due
subjective risk ANS: The perceived amount of risk based on an individual's or organization's opinion.
objective risk ANS: The measurable variation in uncertain outcomes based on facts and data.
diversifiable risk ANS: A risk that affects only some individuals, businesses, or small groups.
non diversifiable risk ANS: A risk that affects a large segment of society at the same time.
systematic risk ANS: The potential for a major disruption in the function of an entire market or financial
system.
market risk ANS: Uncertainty about an investment's future value because of potential changes in the
market for that type of investment
Liquidity Risk ANS: The risk that an asset cannot be sold on short notice without incurring a loss
Hardware Store has been able to control its prices and inventory since it has no competitors. A new
highway currently being constructed is going to allow increased competition for Hardware Store.
According to the quadrants of risk, this risk of increased competition falls into the category of
Select one:
A. Hazard risk.
B. Financial risk.
Probability is best defined as
The uncertainty about outcomes, some of which can be negative.
The possibility that something may occur.
The likelihood that an outcome or event will occur.
The negative outcome associated with risk. ANS: The likelihood that an outcome or event will occur.
Risk is a term that is regularly used and that is generally understood in context. As used in this
discussion, which one of the following is one of the two elements within the definition of risk?
Select one:
A. Uncertainty of outcome
B. Likelihood of injury or damage to property
C. Probability of financial loss
D. Opportunity for profit ANS: A. Uncertainty of outcome
Which one of the following is measurable and quantifies risk?
Select one:
A. Feasibility
B. Possibility
C. Probability
D. Uncertainty ANS: C. Probability
One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty
that risk involves?
Select one:
A. Uncertainty as to how to manage potential losses
,B. Uncertainty as to whether a negative outcome is possible
C. Uncertainty as to the type and timing of an outcome
D. Uncertainty as to whether insurance is available ANS: C. 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
Select one:
A. Possibilities.
B. Uncertainties.
C. Probabilities.
D. Losses. ANS: A. Possibilities.
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
Select one:
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
D. Indentifying hazards. ANS: A. Quantifying risk.
Probabilities are stated as a decimal figure, a percentage, or a
Select one:
A. Credibility factor.
B. Fraction.
C. Stated constant.
D. Dollar amount. ANS: 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?
Select one:
A. It is typically expressed verbally rather than numerically.
B. It can be used to decide which activities to undertake.
C. It verifies that risk is present, but does not quantify it.
D. It identifies what can be lost when a negative outcome occurs. ANS: B. It can be used to decide which
activities to undertake.
Risk involves the possibility of a negative outcome. Possibility means
Select one:
A. The likelihood of an event occurring.
B. That an outcome is unavoidable.
C. An identified and predictable outcome.
D. That an outcome may or may not occur. ANS: D. That an outcome may or may not occur.
An automobile owner faces a risk of loss from a possible collision. The auto will either suffer a collision
loss or not. If a collision occurs, there will be a financial loss. If there is no collision, the owner's financial
condition is unchanged. This is an example of what type of risk?
Pure
Speculative
Nondiversifiable
Subjective ANS: Pure
Pure risk ANS: A chance of loss or no loss, but no chance of gain.
, speculative risk ANS: A chance of loss, no loss, or gain.
credit risk ANS: The risk that customers or other creditors will fail to make promised payments as they
come due
subjective risk ANS: The perceived amount of risk based on an individual's or organization's opinion.
objective risk ANS: The measurable variation in uncertain outcomes based on facts and data.
diversifiable risk ANS: A risk that affects only some individuals, businesses, or small groups.
non diversifiable risk ANS: A risk that affects a large segment of society at the same time.
systematic risk ANS: The potential for a major disruption in the function of an entire market or financial
system.
market risk ANS: Uncertainty about an investment's future value because of potential changes in the
market for that type of investment
Liquidity Risk ANS: The risk that an asset cannot be sold on short notice without incurring a loss
Hardware Store has been able to control its prices and inventory since it has no competitors. A new
highway currently being constructed is going to allow increased competition for Hardware Store.
According to the quadrants of risk, this risk of increased competition falls into the category of
Select one:
A. Hazard risk.
B. Financial risk.
