CPCU 551 Questions and Correct Detailed Answer

CPCU 551 Questions and Correct
Detailed Answers
Question 1

ID# 5926848Points: 1

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A self-supporting solid wall that prevents a fire from passing through or around it is a

Select one:

A. Hostile fire.

B. Fire wall.

C. Fire division.

D. Fire stop. - Answer: b



Question 2

ID# 5855905Points: 1

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Alice bought furniture for her home using store credit. There were no liens attached, and when Alice
could not pay the full amount for the furniture, the store owner sued her. The store owner was

Select one:

A. A secured creditor.

B. A bailor.

C. An unsecured creditor.

D. A lessor. - Answer: c



Question 3

ID# 5926847Points: 1

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,Martin enters a warehouse by smashing a basement window and climbing through the opening. He
steals supplies and a box of petty cash and exits the building through the same window. This is an
example of which one of the following types of theft?

Select one:

A. Embezzlement

B. Robbery

C. Burglary

D. Employee dishonesty - Answer: c



Question 4

ID# 5941424Points: 1

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The availability of funds to pay for losses is most important to organizations when

Select one:

A. Operations have been disrupted.

B. The organization's retained exposures are low.

C. The level of uncertainty surrounding losses is low.

D. Asset liquidity is extremely high. - Answer: a



Question 5

ID# 5919949Points: 1

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Which one of the following is a characteristic of an organization that would be more appropriate for
risk transfer than risk retention?

Select one:

A. Weak financial condition

B. Diversity of loss exposures

C. High risk tolerance

D. Loss control capabilities - Answer: a

,Question 6

ID# 5929943Points: 1

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A pool is made up of

Select one:

A. Individual states.

B. Stock insurers.

C. Premiums.

D. Member organizations. - Answer: d



Question 7

ID# 5841785Points: 1

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Which one of the following statements is correct with respect to transfer's ability to meet risk
financing goals?

Select one:

A. Transfer increases the level of liquidity that an organization requires.

B. The primary benefit of transfer is that it allows an organization to manage its cost of risk.

C. The primary benefit of transfer is certainty regarding the ability to pay losses.

D. Transfer is less effective than retention in managing cash flow variability. - Answer: c



Question 8

ID# 5841787Points: 1

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Risk transfer measures are most appropriate for losses that exhibit which one of the following
patterns?

Select one:

A. Low-frequency, high-severity

B. High-frequency, low-severity

, C. Low-frequency, low-severity

D. High-frequency, high-severity - Answer: a



Question 9

ID# 5832525Points: 1

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If the organization wishes to pre-fund for retained future losses, it must determine the present value
of the expected future losses. Calculating the present value of a future amount is known as

Select one:

A. Depreciating.

B. Discounting.

C. Compounding.

D. Indexing. - Answer: b



Question 10

ID# 5879039Points: 1

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One goal of risk financing is to handle risk in a cost-effective manner. To do this, an organization
seeks to minimize its total expenditures on loss control, retained losses, loss transfer costs, and
administrative expenses. A composite measure encompassing all expenditures on risk is called an
organization's

Select one:

A. Cost of risk.

B. Insurance budget.

C. Capital budget.

D. Cost of capital. - Answer: a



Question 11

ID# 5841790Points: 1

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