AU60 - FINAL EXAM REVIEW
QUESTIONS WITH COMPLETE
ANSWERS
An analyst is comparing the financial data of two companies that compete in the same
industry, Company A and Company B. Each of the two companies has the same return
on assets ratio (ROA), and the analyst wants to understand how each is using its
resources to achieve this result. Further analysis reveals that Company A has a lower
asset turnover ratio than Company B. This analysis indicates that
A
Company B is generating a higher level of sales in proportion to its assets than
Company A.
B
Company A is generating a higher level of sales in proportion to its assets than
Company B.
C
Company B is retaining a higher level of net income relative to sales than Company A.
D
Company A may or may not be retaining a higher level of net income relative to sales
than Company B. - ANSWER-A
An insurance company must have adequate policyholders' surplus if it wishes to
A
Diversify its book of business.
B
Purchase reinsurance.
C
Increase its written premium volume.
D
Avoid adverse selection. - ANSWER-C
Identify the employer, employee, independent contractor and general contractor in the
followings scenario.
ABC Corporation (ABC) is building an apartment complex with 30 units. ABC trains
John's team on the state regulations, local building codes and deadlines for the project.
ABC contracts with Malvern Electrical to wire the units because they do not the have
the expertise for electrical work. ABC contracts with Paoli Builders for the roofing and
siding work. Paoli accepts the job but due to the quick deadlines they hire a local roofer
and a separate siding company for portions of the job. - ANSWER-Employer: ABC corp
Employee: John's team
Independent contractor: Malvern Electrical
General contractor: Paoli Builders
Which one of the following best describes what underwriting regulation seeks to
prevent?
, A
Applying different standards or methods of treatment to insureds who have the same
basic characteristics and loss potential
B
Treating insurance applicants differently, or charging different rates based on race,
religion, ethnic background, or loss potential
C
Using different rates, rules, or forms for individual applicants based on purely statistical
evidence
D
Categorizing insurance applicants based on past experience in order to establish
premiums for a future period - ANSWER-A
Which one of the following statements is correct regarding ratemaking methods?
A
The pure premium ratemaking method is the oldest ratemaking method.
B
Insurers entering a new line of business use the loss ratio method to set their initial
rates.
C
The judgment ratemaking method is used when limited data are available.
D
The loss ratio ratemaking method does not factor in profits and contingencies. -
ANSWER-C
Suppose ABC Company comes to insurer XYZ. The underwriter wants to use a debt-to-
equity (D/E) ratio to help determine the extent to which ABC is financed through
borrowings rather than its own funds. Based on the financial information below, what is
ABC's debt-to-equity ratio?
Long-term debt: $10 million
Shareholder's equity: $30 million
Total liabilities: $15 million
Total assets: $60 million - ANSWER-.33
Most organizations must abide by a number of different data privacy regulations. Which
one of the following statements is true regarding the General Data Protection
Regulation (GDPR)?
A
The GDPR applies primarily to healthcare providers and those that administer
healthcare plans.
B
The GDPR applies only to businesses located in the European Union (EU).
C
The GDPR requires organizations in every state to notify individuals of security
breaches in which their personally identifiable information may have been exposed.
D
QUESTIONS WITH COMPLETE
ANSWERS
An analyst is comparing the financial data of two companies that compete in the same
industry, Company A and Company B. Each of the two companies has the same return
on assets ratio (ROA), and the analyst wants to understand how each is using its
resources to achieve this result. Further analysis reveals that Company A has a lower
asset turnover ratio than Company B. This analysis indicates that
A
Company B is generating a higher level of sales in proportion to its assets than
Company A.
B
Company A is generating a higher level of sales in proportion to its assets than
Company B.
C
Company B is retaining a higher level of net income relative to sales than Company A.
D
Company A may or may not be retaining a higher level of net income relative to sales
than Company B. - ANSWER-A
An insurance company must have adequate policyholders' surplus if it wishes to
A
Diversify its book of business.
B
Purchase reinsurance.
C
Increase its written premium volume.
D
Avoid adverse selection. - ANSWER-C
Identify the employer, employee, independent contractor and general contractor in the
followings scenario.
ABC Corporation (ABC) is building an apartment complex with 30 units. ABC trains
John's team on the state regulations, local building codes and deadlines for the project.
ABC contracts with Malvern Electrical to wire the units because they do not the have
the expertise for electrical work. ABC contracts with Paoli Builders for the roofing and
siding work. Paoli accepts the job but due to the quick deadlines they hire a local roofer
and a separate siding company for portions of the job. - ANSWER-Employer: ABC corp
Employee: John's team
Independent contractor: Malvern Electrical
General contractor: Paoli Builders
Which one of the following best describes what underwriting regulation seeks to
prevent?
, A
Applying different standards or methods of treatment to insureds who have the same
basic characteristics and loss potential
B
Treating insurance applicants differently, or charging different rates based on race,
religion, ethnic background, or loss potential
C
Using different rates, rules, or forms for individual applicants based on purely statistical
evidence
D
Categorizing insurance applicants based on past experience in order to establish
premiums for a future period - ANSWER-A
Which one of the following statements is correct regarding ratemaking methods?
A
The pure premium ratemaking method is the oldest ratemaking method.
B
Insurers entering a new line of business use the loss ratio method to set their initial
rates.
C
The judgment ratemaking method is used when limited data are available.
D
The loss ratio ratemaking method does not factor in profits and contingencies. -
ANSWER-C
Suppose ABC Company comes to insurer XYZ. The underwriter wants to use a debt-to-
equity (D/E) ratio to help determine the extent to which ABC is financed through
borrowings rather than its own funds. Based on the financial information below, what is
ABC's debt-to-equity ratio?
Long-term debt: $10 million
Shareholder's equity: $30 million
Total liabilities: $15 million
Total assets: $60 million - ANSWER-.33
Most organizations must abide by a number of different data privacy regulations. Which
one of the following statements is true regarding the General Data Protection
Regulation (GDPR)?
A
The GDPR applies primarily to healthcare providers and those that administer
healthcare plans.
B
The GDPR applies only to businesses located in the European Union (EU).
C
The GDPR requires organizations in every state to notify individuals of security
breaches in which their personally identifiable information may have been exposed.
D
