ARM 54 practice questions with
Correct Answers 100% Pass
Autumn Assurance Group has assets at fair value of $100 million.
The present value of Autumn's liabilities is $85 million. The market
value margin is $5 million. Using probability models, Autumn
determines that its VaR is $8 million because it expects to incur an
$8 million or greater loss of capital at a .5 percent probability over
a one-year period.
1. What is Autumn's MVS?
2. What is Autumn's economic capital?
3. Does Autumn have excess capital or a deficiency in capital? - ✔✔MVS =
Fair value of assets - (Present value of liabilities + Market value margin)
1
100% Pass Guarantee Katelyn Whitman, All Rights
,Autumn's MVS = $100 million - ($85 million + $5 million) = $10 million
Autumn's economic capital is $8 million. The VaR is $8 million at the
threshold determined by Autumn.
Autumn's MVS of $10 million is larger than its economic capital of $8
million. Therefore, Autumn has excess capital. of $2 million.
Assume that the length of time a heating element can operate
safely conforms to a normal distribution with a mean of 5,000
hours and a standard deviation of 1,000 hours. If the element is
replaced after 5,000 hours, which one of the following represents
the chance that the heating element will become unsafe before
being replaced?
A: 70 percent
B: 50 percent
C: 40 percent
D: 20 percent - ✔✔50 percent
2
100% Pass Guarantee Katelyn Whitman, All Rights
,Vandenberg 's risk manager uses regression analysis to
determine the relationship between Vandenberg's workers
compensation medical expenses (the dependent variable) and its
payroll (the independent variable). The formula for Vandenberg's
linear regression line is y = 5.20 + .098 (x). Next year's payroll is
estimated to equal $3,750,000. Based on this information what are
Vandenberg's estimated workers compensation medical expenses
next year?
A: $367,495
B: $367,500
C: $367,505
D: $375,520 - ✔✔C 367,505
Aligning risks with the organization's risk appetite defines - ✔✔tolerable
uncertainty
3
100% Pass Guarantee Katelyn Whitman, All Rights
, The total cost incurred by an organization because of the possibility of
accidental loss is the organization's - ✔✔cost of risk
The concept of correlation, in the context of why enterprise risk
management works, - ✔✔Is the proposition that correlation increases risk
while uncorrelated risks can reduce risk.
Which one of the following provides a measure of the maximum potential
damage associated with an occurrence? - ✔✔exposure
Which one of the following types of risks can result in losses but not in any
gains? - ✔✔hazard risks
George works for a large company and part of his job is to monitor assets
according to their liquidity. George is particularly concerned that the
company fleet cars are affecting its liquidity and rising fuel prices are
having an adverse effect during tight economic markets. If George's
concerns were categorized as causes of loss according to the quadrants of
risk, his concern most directly relates to which one of the following types of
risks? - ✔✔financial risks
4
100% Pass Guarantee Katelyn Whitman, All Rights
Correct Answers 100% Pass
Autumn Assurance Group has assets at fair value of $100 million.
The present value of Autumn's liabilities is $85 million. The market
value margin is $5 million. Using probability models, Autumn
determines that its VaR is $8 million because it expects to incur an
$8 million or greater loss of capital at a .5 percent probability over
a one-year period.
1. What is Autumn's MVS?
2. What is Autumn's economic capital?
3. Does Autumn have excess capital or a deficiency in capital? - ✔✔MVS =
Fair value of assets - (Present value of liabilities + Market value margin)
1
100% Pass Guarantee Katelyn Whitman, All Rights
,Autumn's MVS = $100 million - ($85 million + $5 million) = $10 million
Autumn's economic capital is $8 million. The VaR is $8 million at the
threshold determined by Autumn.
Autumn's MVS of $10 million is larger than its economic capital of $8
million. Therefore, Autumn has excess capital. of $2 million.
Assume that the length of time a heating element can operate
safely conforms to a normal distribution with a mean of 5,000
hours and a standard deviation of 1,000 hours. If the element is
replaced after 5,000 hours, which one of the following represents
the chance that the heating element will become unsafe before
being replaced?
A: 70 percent
B: 50 percent
C: 40 percent
D: 20 percent - ✔✔50 percent
2
100% Pass Guarantee Katelyn Whitman, All Rights
,Vandenberg 's risk manager uses regression analysis to
determine the relationship between Vandenberg's workers
compensation medical expenses (the dependent variable) and its
payroll (the independent variable). The formula for Vandenberg's
linear regression line is y = 5.20 + .098 (x). Next year's payroll is
estimated to equal $3,750,000. Based on this information what are
Vandenberg's estimated workers compensation medical expenses
next year?
A: $367,495
B: $367,500
C: $367,505
D: $375,520 - ✔✔C 367,505
Aligning risks with the organization's risk appetite defines - ✔✔tolerable
uncertainty
3
100% Pass Guarantee Katelyn Whitman, All Rights
, The total cost incurred by an organization because of the possibility of
accidental loss is the organization's - ✔✔cost of risk
The concept of correlation, in the context of why enterprise risk
management works, - ✔✔Is the proposition that correlation increases risk
while uncorrelated risks can reduce risk.
Which one of the following provides a measure of the maximum potential
damage associated with an occurrence? - ✔✔exposure
Which one of the following types of risks can result in losses but not in any
gains? - ✔✔hazard risks
George works for a large company and part of his job is to monitor assets
according to their liquidity. George is particularly concerned that the
company fleet cars are affecting its liquidity and rising fuel prices are
having an adverse effect during tight economic markets. If George's
concerns were categorized as causes of loss according to the quadrants of
risk, his concern most directly relates to which one of the following types of
risks? - ✔✔financial risks
4
100% Pass Guarantee Katelyn Whitman, All Rights
