CPCU 500 GRADED A+ EXAMS WITH
SOLUTIONS 2025
Risk - Answer - the uncertainty about outcomes, with the possibility that some of the outcomes can be
negative. Quantified by knowing the probability of the possible outcomes
Probability - Answer - the likelihood that an outcome or event will occur. Probabilities are stated as a
decimal figure, a percentage, or a fraction.
What are the 2 elements associated with risk? - Answer - uncertainty of outcome + possibility of negative
outcome
Pure Risk - Answer - a chance of loss or no loss, but no chance of gain.
Speculative Risk - Answer - a chance of gain or loss (investment).
Price Risk - Answer - the uncertainty over the size of cash flows resulting from possible changes in the
cost of raw materials and other inputs (lumber, gas, or electricity)
Credit Risk - Answer - the risk that customers and other debtors will fail to make promised payments.
Distinguish Diversifiable vs. Nondiversifiable Risk - Answer - Diversifiable risks can be managed by
spreading (such as purchasing multiple businesses). Nondiversifiable risks are correlated so that their
gains or losses tend to occur simultaneously rather than randomly.
What are the 4 quadrants of risk? - Answer - Hazard, Operational, Financial, and Strategic risk
Hazard - Answer - a condition that increases the frequency or severity of a loss.
SOLUTIONS 2025
Risk - Answer - the uncertainty about outcomes, with the possibility that some of the outcomes can be
negative. Quantified by knowing the probability of the possible outcomes
Probability - Answer - the likelihood that an outcome or event will occur. Probabilities are stated as a
decimal figure, a percentage, or a fraction.
What are the 2 elements associated with risk? - Answer - uncertainty of outcome + possibility of negative
outcome
Pure Risk - Answer - a chance of loss or no loss, but no chance of gain.
Speculative Risk - Answer - a chance of gain or loss (investment).
Price Risk - Answer - the uncertainty over the size of cash flows resulting from possible changes in the
cost of raw materials and other inputs (lumber, gas, or electricity)
Credit Risk - Answer - the risk that customers and other debtors will fail to make promised payments.
Distinguish Diversifiable vs. Nondiversifiable Risk - Answer - Diversifiable risks can be managed by
spreading (such as purchasing multiple businesses). Nondiversifiable risks are correlated so that their
gains or losses tend to occur simultaneously rather than randomly.
What are the 4 quadrants of risk? - Answer - Hazard, Operational, Financial, and Strategic risk
Hazard - Answer - a condition that increases the frequency or severity of a loss.
