ARM 401 Exam Test Bank 3 Latest 200 Questions and
Correct Answers / ARM 401 Holistically Assessing
Risk Exam 2025-2026 Prep Qs and As
Tania works in the fraud unit for Greatview Insurance. There is a claimant who
appears to be involved in multiple cases of insurance fraud. Tania decides to use
social media to obtain information that may be used to develop a profile of the
claimant. Tania's use of social media is an example of which one of the following
types of data? - ANSWER-Unstructured external
Which one of the following descriptions best applies to Monte Carlo Simulation? -
ANSWER-A computer-based method of analyzing possible outcomes based on a
specific set of variables.
Which one of the following statements is correct with respect to continuous
probability distributions? - ANSWER-One way of presenting a continuous
probability distribution is to divide the distribution into a countable number of
bins.
Which one of the following statements is true regarding event tree analysis? -
ANSWER-Event tree analysis typically provides only two options, success or
failure.
In Fred's large landscaping business, he knows that there is a point where
equipment becomes unsafe and difficult to maintain. Fred realizes that after 2,000
miles of use, his costs for maintenance on his large mowers and sod busters
dramatically rise. Using probability analysis Fred can better know - ANSWER-
When to replace equipment.
pg. 1
,Which one of the following describes how probabilities are expressed? -
ANSWER-Numerically, as a fraction, a percentage, or a decimal
Determining earnings-at-risk (EaR) entails modeling the influence of factors such
as - ANSWER-Changes in the prices of products and production costs on an
organization's earnings.
Every probability distribution includes the probability of - ANSWER-Every
possible outcome
Which one of the following is the initiating event in an event tree analysis? -
ANSWER-Lightning strikes a warehouse building while it is closed for the
weekend
Global Reinsurance Company (GRC) is a European reinsurer that accepts risks
from insurers around the world. Financial managers at GRC would like to estimate
profitability for next year for their five primary risk areas: flood risk in Europe,
earthquake risk in Japan, hurricane risk for the Gulf Coast of the United States,
California earthquake risk, and typhoon risk in Indian Ocean nations. The financial
managers entered event probabilities, loss payment estimates, retained loss levels,
premiums to be received, and other data into a computer. Then the computer was
programmed to select values for each variable and based on the data, to calculate
net income. The computer was programmed to repeat the calculation 500,000
times. The output from the analysis was a distribution showing the probability of
obtaining various profit levels. The procedure GRC used is called - ANSWER-
Computer simulation
In a normal distribution, fewer than 5% of outcomes are - ANSWER-Outside two
standard deviations above or below the mean.
pg. 2
,Magruder Company would like to estimate the number of workers compensation
claims to expect next year. Magruder's risk manager ran a regression analysis in
which the number of workers compensation claims was the dependent variable and
the number of payroll hours worked (in thousands) was the independent variable.
The y-intercept from the regression was 3.8. The slope coefficient was 1.4. The
risk manager believes that next year Magruder workers will work 80,000 payroll
hours. Based on this information, approximately how many workers compensation
claims should the risk manager expect next year? - ANSWER-116 (y = mx + b,
payroll is the independent x axis and claims is the dependent y axis. y = 1.4 (80) +
3.8 = 115.8, rounded to 116 claims next year)
A main difference between decision trees and event trees is - ANSWER-That
event trees analyze the consequences of accidental events rather than decisions
The theoretical probability of a head on a coin toss is 50%. Based on the law of
large numbers, which one of the following is the number of coin tosses most likely
to result in an empirical frequency of 50% receiving a head on a coin toss? -
ANSWER-100 (As the number of samples increase, the empirical frequency of a
head on a coin toss will move closer and closer to 50%. Of the choices provided,
the number of coin tosses most likely to result in an empirical frequency of 50%
receiving a head on a coin toss is 100.)
Which one of the following statements is true if earnings at risk are $200,000 with
90% confidence? - ANSWER-Earnings at risk are projected to be less than
$200,000 10% of the time.
If 95.44% of all outcomes are within two standard deviations above and below the
mean and 2.15% of all outcomes are between two and three standard deviations
above and 2.15% of all outcomes are between two and three standard below the
mean, the percentage of all outcomes that lie beyond three standard deviations
from (above and below) the mean is - ANSWER-26 (100% - 95.44% - 2.15% -
2.15% =.26%; .26% of all outcomes lie outside three standard deviations above
and below the mean.)
pg. 3
, Which one of the following is considered the most effective loss control method
against potential losses from computer hackers? - ANSWER-Computer passwords
Mike is the new risk manager for ABC Web Hosting, LLC. ABC develops and
hosts Web sites for many different organizations. Mike took over the risk manager
position from Tom, who was let go for poor performance.
XYZ Retailer was one customer for whom ABC built a Web site. Recently, XYZ
Retailer accused ABC of not building a secure site. As a result of the site not being
secure, XYZ Retailer claims that its sales have decreased dramatically. XYZ also
contends that the personal information of many of its customers was compromised
and, now, XYZ is being sued by a group of its customers for not doing a better job
of protecting their personal information. Now XYZ Retailer is suing ABC Web
Hosting, LLC.
Two noninsurance risk transfer methods ABC could have used as a means of risk
financing are - ANSWER-. A hold-harmless agreement and a liability disclaimer
Third parties in a cyber insurance transaction are typically - ANSWER-Customers
of the first party.
As part of its assessment of its cyber risk, an organization should consider whether
there are any intangible property exposures. Which one of the following would
best be classified as an intangible property loss? - ANSWER-The computer
system is hacked and data including credit card numbers are stolen.
Directors and officers of a corporation have fiduciary duties, which include the
duty of being - ANSWER-loyal
pg. 4
Correct Answers / ARM 401 Holistically Assessing
Risk Exam 2025-2026 Prep Qs and As
Tania works in the fraud unit for Greatview Insurance. There is a claimant who
appears to be involved in multiple cases of insurance fraud. Tania decides to use
social media to obtain information that may be used to develop a profile of the
claimant. Tania's use of social media is an example of which one of the following
types of data? - ANSWER-Unstructured external
Which one of the following descriptions best applies to Monte Carlo Simulation? -
ANSWER-A computer-based method of analyzing possible outcomes based on a
specific set of variables.
Which one of the following statements is correct with respect to continuous
probability distributions? - ANSWER-One way of presenting a continuous
probability distribution is to divide the distribution into a countable number of
bins.
Which one of the following statements is true regarding event tree analysis? -
ANSWER-Event tree analysis typically provides only two options, success or
failure.
In Fred's large landscaping business, he knows that there is a point where
equipment becomes unsafe and difficult to maintain. Fred realizes that after 2,000
miles of use, his costs for maintenance on his large mowers and sod busters
dramatically rise. Using probability analysis Fred can better know - ANSWER-
When to replace equipment.
pg. 1
,Which one of the following describes how probabilities are expressed? -
ANSWER-Numerically, as a fraction, a percentage, or a decimal
Determining earnings-at-risk (EaR) entails modeling the influence of factors such
as - ANSWER-Changes in the prices of products and production costs on an
organization's earnings.
Every probability distribution includes the probability of - ANSWER-Every
possible outcome
Which one of the following is the initiating event in an event tree analysis? -
ANSWER-Lightning strikes a warehouse building while it is closed for the
weekend
Global Reinsurance Company (GRC) is a European reinsurer that accepts risks
from insurers around the world. Financial managers at GRC would like to estimate
profitability for next year for their five primary risk areas: flood risk in Europe,
earthquake risk in Japan, hurricane risk for the Gulf Coast of the United States,
California earthquake risk, and typhoon risk in Indian Ocean nations. The financial
managers entered event probabilities, loss payment estimates, retained loss levels,
premiums to be received, and other data into a computer. Then the computer was
programmed to select values for each variable and based on the data, to calculate
net income. The computer was programmed to repeat the calculation 500,000
times. The output from the analysis was a distribution showing the probability of
obtaining various profit levels. The procedure GRC used is called - ANSWER-
Computer simulation
In a normal distribution, fewer than 5% of outcomes are - ANSWER-Outside two
standard deviations above or below the mean.
pg. 2
,Magruder Company would like to estimate the number of workers compensation
claims to expect next year. Magruder's risk manager ran a regression analysis in
which the number of workers compensation claims was the dependent variable and
the number of payroll hours worked (in thousands) was the independent variable.
The y-intercept from the regression was 3.8. The slope coefficient was 1.4. The
risk manager believes that next year Magruder workers will work 80,000 payroll
hours. Based on this information, approximately how many workers compensation
claims should the risk manager expect next year? - ANSWER-116 (y = mx + b,
payroll is the independent x axis and claims is the dependent y axis. y = 1.4 (80) +
3.8 = 115.8, rounded to 116 claims next year)
A main difference between decision trees and event trees is - ANSWER-That
event trees analyze the consequences of accidental events rather than decisions
The theoretical probability of a head on a coin toss is 50%. Based on the law of
large numbers, which one of the following is the number of coin tosses most likely
to result in an empirical frequency of 50% receiving a head on a coin toss? -
ANSWER-100 (As the number of samples increase, the empirical frequency of a
head on a coin toss will move closer and closer to 50%. Of the choices provided,
the number of coin tosses most likely to result in an empirical frequency of 50%
receiving a head on a coin toss is 100.)
Which one of the following statements is true if earnings at risk are $200,000 with
90% confidence? - ANSWER-Earnings at risk are projected to be less than
$200,000 10% of the time.
If 95.44% of all outcomes are within two standard deviations above and below the
mean and 2.15% of all outcomes are between two and three standard deviations
above and 2.15% of all outcomes are between two and three standard below the
mean, the percentage of all outcomes that lie beyond three standard deviations
from (above and below) the mean is - ANSWER-26 (100% - 95.44% - 2.15% -
2.15% =.26%; .26% of all outcomes lie outside three standard deviations above
and below the mean.)
pg. 3
, Which one of the following is considered the most effective loss control method
against potential losses from computer hackers? - ANSWER-Computer passwords
Mike is the new risk manager for ABC Web Hosting, LLC. ABC develops and
hosts Web sites for many different organizations. Mike took over the risk manager
position from Tom, who was let go for poor performance.
XYZ Retailer was one customer for whom ABC built a Web site. Recently, XYZ
Retailer accused ABC of not building a secure site. As a result of the site not being
secure, XYZ Retailer claims that its sales have decreased dramatically. XYZ also
contends that the personal information of many of its customers was compromised
and, now, XYZ is being sued by a group of its customers for not doing a better job
of protecting their personal information. Now XYZ Retailer is suing ABC Web
Hosting, LLC.
Two noninsurance risk transfer methods ABC could have used as a means of risk
financing are - ANSWER-. A hold-harmless agreement and a liability disclaimer
Third parties in a cyber insurance transaction are typically - ANSWER-Customers
of the first party.
As part of its assessment of its cyber risk, an organization should consider whether
there are any intangible property exposures. Which one of the following would
best be classified as an intangible property loss? - ANSWER-The computer
system is hacked and data including credit card numbers are stolen.
Directors and officers of a corporation have fiduciary duties, which include the
duty of being - ANSWER-loyal
pg. 4
