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UGA RMIN 4000 Edmunds Exam 1
Questions and Correct Answers
risk Ans: uncertainty concerning the occurrence of a loss (or
calculated possibility of a negative outcome)
loss exposure Ans: any situation where a loss is possible (does
not have to occur)
loss frequency Ans: how often a loss occurs within a specific
period (probability)
formula to find frequency Ans: # of losses/# of exposures
loss severity Ans: how much does a loss cost when it occurs (a
house fire costs $x)
formula to find severity Ans: total losses in dollars/# of losses
Peril Ans: cause of loss (fire, windstorm, flood)
Hazard Ans: an event that creates or increases the chance of a
loss without causing
At what probability is risk highest? Ans: 0.5
Do risk and chance of loss mean the same? Ans: No, chance of
loss is the probability that an event will occur
What are the four types of hazards? Ans: Physical, Moral, Morale,
and Legal
Physical hazard Ans: a physical condition that increases the
frequency or severity of loss
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moral hazard Ans: dishonesty or character defects in an
individual that increase the frequency or severity of loss (using a
hammer to create "hail" damage to your roof to get a claim)
Morale (Attitudinal) Hazard Ans: carelessness or indifference to a
loss, which increases the frequency or severity of a loss (leaving
car unlocked leading to theft)
Legal Hazard Ans: characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (a
jury in one district may be more sympathetic than others)
pure risk Ans: a risk with a possibility of loss or no loss; no gain
occurs
speculative risk Ans: A chance of loss, no loss, or gain
diversifiable risk Ans: a risk that affects only individuals or small
groups and not the entire economy
nondiversifiable risk Ans: a risk that affects the entire economy
or large numbers of persons or groups within the economy (war,
inflation, business recession)
what makes a risk diversifiable or not? Ans: it is diversifiable if it
can be reduced or eliminated by diversification
enterprise risk Ans: encompasses all major risks faced by a
business firm
systemic risk Ans: the risk that the failure of one financial
institution can bring down other institutions as well
What are the major types of pure risk? Ans: personal, property,
and liability
personal risk Ans: A risk that directly affects an individual or
family (peril, like unemployment, causes loss of income)
© 2025 All rights reserved
UGA RMIN 4000 Edmunds Exam 1
Questions and Correct Answers
risk Ans: uncertainty concerning the occurrence of a loss (or
calculated possibility of a negative outcome)
loss exposure Ans: any situation where a loss is possible (does
not have to occur)
loss frequency Ans: how often a loss occurs within a specific
period (probability)
formula to find frequency Ans: # of losses/# of exposures
loss severity Ans: how much does a loss cost when it occurs (a
house fire costs $x)
formula to find severity Ans: total losses in dollars/# of losses
Peril Ans: cause of loss (fire, windstorm, flood)
Hazard Ans: an event that creates or increases the chance of a
loss without causing
At what probability is risk highest? Ans: 0.5
Do risk and chance of loss mean the same? Ans: No, chance of
loss is the probability that an event will occur
What are the four types of hazards? Ans: Physical, Moral, Morale,
and Legal
Physical hazard Ans: a physical condition that increases the
frequency or severity of loss
© 2025 All rights reserved
, 2 | Page
moral hazard Ans: dishonesty or character defects in an
individual that increase the frequency or severity of loss (using a
hammer to create "hail" damage to your roof to get a claim)
Morale (Attitudinal) Hazard Ans: carelessness or indifference to a
loss, which increases the frequency or severity of a loss (leaving
car unlocked leading to theft)
Legal Hazard Ans: characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (a
jury in one district may be more sympathetic than others)
pure risk Ans: a risk with a possibility of loss or no loss; no gain
occurs
speculative risk Ans: A chance of loss, no loss, or gain
diversifiable risk Ans: a risk that affects only individuals or small
groups and not the entire economy
nondiversifiable risk Ans: a risk that affects the entire economy
or large numbers of persons or groups within the economy (war,
inflation, business recession)
what makes a risk diversifiable or not? Ans: it is diversifiable if it
can be reduced or eliminated by diversification
enterprise risk Ans: encompasses all major risks faced by a
business firm
systemic risk Ans: the risk that the failure of one financial
institution can bring down other institutions as well
What are the major types of pure risk? Ans: personal, property,
and liability
personal risk Ans: A risk that directly affects an individual or
family (peril, like unemployment, causes loss of income)
© 2025 All rights reserved
