Module 1

Question 1

Risk prevention and risk reduction are both included under which of the following

Answer 1

Risk (loss) control

Question 2

Risk reduction methods are best applied to

Answer 2

High severity losses

Question 3

Risks affecting a large portion of the population at a given time are which of the following

Answer 3

fundamental risks

Question 4

Donna has a home that is insured to its maximum value. She often leaves the door unlocked in case she forgets her keys. She knows that her insurance policy will pay for any losses if her home is robbed. Which of the following best applies to Donna?

Answer 4

Moral/Morale hazard

Question 5

Which of the following is NOT a method of categorizing risk?

Answer 5

Certain vs Uncertain

Question 6

Loss severity describes which of the following?

Answer 6

financial impact of losses

Question 7

Imagine a world where health insurance doesn’t exist. On the upside, you don’t have to pay any health insurance premiums! On the downside, if you become sick you’re responsible for the full amount of your healthcare. What if you had children? The risk of unknown payments for healthcare would require all of us to save a much larger amount of money to set aside just in case we needed it. This burden would be in which of the following categories?

Answer 7

Need for larger emergency funds

Question 8

Which of the following is NOT a type of funded retention?

Answer 8

All of the above are examples of funded retention (Reserves, Self-Insurance, Captives)

Question 9

Gary works in a factory where the workers are known to leave oily rags all over the place. Which of the following best describes the oily rags?

Answer 9

Physical Hazard

Question 10

Tom is a college student at FSU. He has the option to buy a parking pass at the beginning of the year for $250. If Tom doesn’t buy the pass, he has to park on the street or pay the valet parking service $5 per day. If Tom does not buy the parking pass, he expects to have to use the valet parking services 40 times. However, he may end up using the valet service up to 80 times. Tom decides that he would rather pay the $250 than risk not being able to find a spot on the street. Tom could be described as which of the following:

Answer 10

Risk averse

Question 11

Karen won’t allow any of the neighborhood children into her yard because she has a large swimming pool and doesn’t want anyone to fall in, resulting in her being responsible for the harm of a child. What type of risk is Karen trying to avoid?

Answer 11

Liability

Question 12

Loss frequency describes which of the following?

Answer 12

Number of losses

Question 13

Hazards may be categorized by which of the following groups?

Answer 13

Tangible (Physical) and intangible

Question 14

Why should we measure loss severity?

Answer 14

a. Risk Classification

b. Determination of transfer (insurance) amount

Question 15

Which of the following is not a category of risk retention?

Answer 15

Primary versus secondary

Question 16

Risk prevention methods are best applied to?

Answer 16

High frequency losses

Question 17

As the Chief Investment Officer for “A Nyce Place to Work” you have been given the opportunity to invest in the Super-Tazer. It is a tazer, that when you push the button incapacitates everyone in a 10 foot radius of you. You have figured out that there are three potential outcomes for this investment:

Outcome Probability Return

1. .25 .10
2. .50 .25
3. .25 .40

What is the expected return on the investment?

Answer 17

.25
Probability x Return
Add all 3 up

Question 18

As the manager of High Speed Records, you have signed a new artist to the label. There are three different outcomes for investing in the artist. What is the expected return on investment using the information below?

Outcome Probability Return

1. .35 .20
2. .25 .36
3. .40 .10

Answer 18

0.2
Probability x Return
Add all 3 up