RMIN 4000 uga test 1 Exam Questions
and Answers Graded A+
types of risk - Correct answer--pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - Correct answer-uncertainty concerning the occurrence of a loss
uncertainty - Correct answer-probabilities cannot be estimated
loss exposure - Correct answer-any situation or circumstance in which a loss is
possible, regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
objective risk (degree of risk) - Correct answer-the relative variation of actual loss
from expected loss
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,example:10,000 houses insured of a long period of time and on average 100 houses
burn each year, however it would be rare for exactly 100 to burn each year
law of large numbers - Correct answer-as the number of exposure units increases,
the more closely the actual loss experience will approach the expected loss
experience
example: as the number of homes under observation increases, the greater is the
degree of accuracy in predicting the proportion of homes that will burn
subjective risk (perceived risk) - Correct answer-uncertainty based on a person's
mental condition or state of mind
example: driver with previous convictions for drunk driving tries to drive home
and wonders if he will get arrested by the police or not
chance of loss - Correct answer-the probability that an event will occur
objective probability - Correct answer-the long run relative frequency of an event
based on the assumptions of an infinite number of observations and of no change
in the underlying conditions
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, two ways objective probability can be determined - Correct answer-1) deductive
reasoning (priori probabilities): probability of getting a head from the toss of a
perfectly balanced coin is 1/2 bc there are two sides
2) inductive reasoning: the probability that a person age 21 will die before age 26
cannot be logically deduced, life insurers can estimate the probability of death and
sell a 5 year life insurance policy for a 21 yr old
subjective probability - Correct answer-the individual's personal estimate of the
chance of loss
example: people who buy a lottery ticket on their birthday may believe it is their
lucky day and overestimate the small chance of winning
objective risk - Correct answer-the relative variation of actual loss from expected
loss
peril - Correct answer-the cause of loss
example: house burns down, peril is the fire
hazard - Correct answer-condition that creates or increases the frequency or
severity of loss
4 types of hazards - Correct answer-1) physical hazard
2) moral hazard
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and Answers Graded A+
types of risk - Correct answer--pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - Correct answer-uncertainty concerning the occurrence of a loss
uncertainty - Correct answer-probabilities cannot be estimated
loss exposure - Correct answer-any situation or circumstance in which a loss is
possible, regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
objective risk (degree of risk) - Correct answer-the relative variation of actual loss
from expected loss
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,example:10,000 houses insured of a long period of time and on average 100 houses
burn each year, however it would be rare for exactly 100 to burn each year
law of large numbers - Correct answer-as the number of exposure units increases,
the more closely the actual loss experience will approach the expected loss
experience
example: as the number of homes under observation increases, the greater is the
degree of accuracy in predicting the proportion of homes that will burn
subjective risk (perceived risk) - Correct answer-uncertainty based on a person's
mental condition or state of mind
example: driver with previous convictions for drunk driving tries to drive home
and wonders if he will get arrested by the police or not
chance of loss - Correct answer-the probability that an event will occur
objective probability - Correct answer-the long run relative frequency of an event
based on the assumptions of an infinite number of observations and of no change
in the underlying conditions
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, two ways objective probability can be determined - Correct answer-1) deductive
reasoning (priori probabilities): probability of getting a head from the toss of a
perfectly balanced coin is 1/2 bc there are two sides
2) inductive reasoning: the probability that a person age 21 will die before age 26
cannot be logically deduced, life insurers can estimate the probability of death and
sell a 5 year life insurance policy for a 21 yr old
subjective probability - Correct answer-the individual's personal estimate of the
chance of loss
example: people who buy a lottery ticket on their birthday may believe it is their
lucky day and overestimate the small chance of winning
objective risk - Correct answer-the relative variation of actual loss from expected
loss
peril - Correct answer-the cause of loss
example: house burns down, peril is the fire
hazard - Correct answer-condition that creates or increases the frequency or
severity of loss
4 types of hazards - Correct answer-1) physical hazard
2) moral hazard
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