1、1Copyright 2011 Pearson Education, Inc.Principles of Risk Management and Insurance, 11e (Rejda)Chapter 1 Risk in Our Society1) Traditionally, risk has been defined asA) any situation in which the probability of loss is one.B) any situation in which the probability of loss is zero.C) uncertainty conc
2、erning the occurrence of loss.D) the probability of a loss occurring.Answer: CQuestion Status: Previous Edition2) Objective risk is defined asA) the probability of loss.B) the relative variation of actual loss from expected loss.C) uncertainty based on a persons mental condition or state of mind.D)
3、the cause of loss.Answer: BQuestion Status: Previous Edition3) An insurance company estimates its objective risk for 10,000 exposures to be 10 percent. Assuming the probability of loss remains the same, what would happen to the objective risk if the number of exposures were to increase to 1 million?
4、A) It would decrease to 1 percent.B) It would decrease to 5 percent.C) It would remain the same.D) It would increase to 20 percent.Answer: AQuestion Status: Previous Edition4) Uncertainty based on a persons mental condition or state of mind is known asA) objective risk.B) subjective risk.C) objectiv
5、e probability.D) subjective probability.Answer: BQuestion Status: Previous Edition5) The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is calledA) objective probability.B) objective risk.C) subjective
6、 probability.D) subjective risk.Answer: AQuestion Status: Previous Edition2Copyright 2011 Pearson Education, Inc.6) Which of the following statements about a priori probabilities is correct?A) They are subjective probabilities based on ambiguity in the way probability is perceived.B) They are subjec
7、tive probabilities that may vary among individuals because of factors such as age, gender, education, and the use of alcohol.C) They are objective probabilities that can be determined by deductive reasoning.D) They are objective probabilities that can be determined by subjective reasoning.Answer: CQ
8、uestion Status: Previous Edition7) An individuals personal estimate of the chance of loss isA) an objective probability.B) an objective risk.C) a subjective probability.D) an a priori probability.Answer: CQuestion Status: Previous Edition8) A peril isA) a moral hazard.B) the cause of a loss.C) a con
9、dition which increases the chance of a loss.D) the probability that a loss will occur.Answer: BQuestion Status: Previous Edition9) An earthquake is an example of aA) moral hazard.B) peril.C) physical hazard.D) objective risk.Answer: BQuestion Status: Previous Edition10) Dense fog that increases the
10、chance of an automobile accident is an example of aA) speculative risk.B) peril.C) physical hazard.D) moral hazard.Answer: CQuestion Status: Previous Edition3Copyright 2011 Pearson Education, Inc.11) Faking an accident to collect insurance proceeds is an example of aA) physical hazard.B) objective r
11、isk.C) moral hazard.D) attitudinal hazard.Answer: CQuestion Status: Revised12) Carelessness or indifference to a loss is an example of A) physical hazard.B) objective probability.C) moral hazard.D) attitudinal hazard.Answer: DQuestion Status: Revised13) Some characteristics of the judicial system an
12、d regulatory environment increase the frequency and severity of loss. This hazard is calledA) moral hazard.B) physical hazard.C) attitudinal hazard.D) legal hazard.Answer: DQuestion Status: Revised14) Taylor Tobacco Company is concerned that the company may be held liable in a court of law and order
13、ed to pay a large damage award. The characteristics of the judicial system that increase the frequency and severity of losses are known asA) moral hazard.B) particular risk.C) speculative risk.D) legal hazard.Answer: DQuestion Status: Previous Edition15) A phrase that encompasses all of the major ri
14、sks faced by a business firm isA) financial risk.B) speculative risk.C) enterprise risk.D) pure risk.Answer: CQuestion Status: Previous Edition4Copyright 2011 Pearson Education, Inc.16) Which of the following statements about financial risk is (are) true?I. Enterprise risk does not include financial
15、 risk. II. Financial risk is easily addressed through the purchase of insurance.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: DQuestion Status: Previous Edition17) All of the following are considered financial risks EXCEPTA) the decline in the value of a bond portfolio because of ris
16、ing interest rates.B) increased cost of production because of rising commodity prices.C) loss of money because of adverse movements in currency exchange rates.D) destruction of a production facility caused by an explosion. Answer: DQuestion Status: Previous Edition18) Katelyn was just named Risk Man
17、ager of ABC Company. She has decided to create a risk management program which considers all of the risks faced by ABC-pure, speculative, operational, and strategic-in a single risk management program. Such a program is called a(n)A) financial risk management program.B) enterprise risk management pr
18、ogram.C) fundamental risk management program.D) consequential risk management program.Answer: BQuestion Status: Previous Edition19) A pure risk is defined as a situation in which there isA) only the possibility of loss or no loss.B) only the possibility of profit.C) a possibility of neither profit n
19、or loss.D) a possibility of either profit or loss.Answer: AQuestion Status: Previous Edition20) The premature death of an individual is an example of aA) pure risk.B) speculative risk.C) fundamental risk.D) physical hazard.Answer: AQuestion Status: Previous Edition5Copyright 2011 Pearson Education,
20、Inc.21) Which of the following statements about speculative risks is true?A) They are almost always insurable by private insurers.B) They are more easily predictable than pure risks.C) They may benefit society even though a loss occurs.D) They involve only a chance of loss.Answer: CQuestion Status:
21、Revised22) An automobile that is a total loss as a result of a collision is an example of which of the following types of risk?I. Speculative riskII. Diversifiable riskA) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Revised23) All of the following are programs to insu
22、re fundamental risks EXCEPTA) federally subsidized flood insurance.B) auto physical damage insurance.C) Social Security.D) unemployment insurance.Answer: BQuestion Status: Previous Edition24) All of the following are examples of personal risks EXCEPTA) poor health.B) unemployment.C) premature death.
23、D) flood.Answer: DQuestion Status: Previous Edition25) Which of the following is a reason why premature death may result in economic insecurity?I. Additional expenses associated with death may be incurred.II. The income of the deceased persons family may be inadequate to meet its basic needs.A) I on
24、lyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition6Copyright 2011 Pearson Education, Inc.26) Which of the following are often consequences of long-term disability?I. Continuing medical expensesII. Loss or reduction of employee benefitsA) I onlyB) II onlyC) both
25、 I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition27) All of the following are examples of direct property losses EXCEPTA) the theft of a persons jewelry.B) the destruction of a firms manufacturing plant by an earthquake.C) the cost of renting a substitute vehicle while a collisi
26、on-damaged car is being repaired.D) the vandalism of a persons automobile.Answer: CQuestion Status: Previous Edition28) The extra expense incurred by a business to stay in operation following a fire is an example of a(n)A) fundamental risk.B) speculative risk.C) direct loss.D) indirect loss.Answer:
27、DQuestion Status: Previous Edition29) Which of the following statements about liability risks is (are) true?I. Future income and assets can be attached to pay judgments if inadequate insurance is carried.II. There is an upper limit on the amount of loss.A) I onlyB) II onlyC) both I and IID) neither
28、I nor IIAnswer: AQuestion Status: Previous Edition30) All of the following are burdens to society because of the presence of risk EXCEPTA) The size of an emergency fund must be increased.B) Individuals may profit from accepting a speculative risk. C) Society is deprived of certain goods and services
29、.D) Mental fear and worry are present.Answer: BQuestion Status: Previous Edition7Copyright 2011 Pearson Education, Inc.31) Loss control includes which of the following?I. Loss reductionII. Loss preventionA) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition
30、32) Following good health habits can be categorized asA) loss prevention.B) risk retention.C) noninsurance transfer.D) personal insurance.Answer: AQuestion Status: Revised33) From the insureds perspective, the use of deductibles in insurance contracts is an example ofA) risk transfer.B) loss control
31、.C) risk avoidance.D) risk retention.Answer: DQuestion Status: Previous Edition34) The use of fire-resistive materials when constructing a building is an example ofA) risk transfer.B) loss control.C) risk avoidance.D) risk retention.Answer: BQuestion Status: Previous Edition35) All of the following
32、statements about risk retention are true EXCEPTA) It may be used intentionally if commercial insurance is unavailable.B) It may be used passively because of ignorance.C) Its use is most appropriate for low-frequency, high-severity types of risks.D) Its use results in cost savings if losses are less
33、than the cost of insurance.Answer: CQuestion Status: Previous Edition8Copyright 2011 Pearson Education, Inc.36) All of the following are methods of noninsurance transfer EXCEPTA) entering into a hold-harmless agreement.B) avoiding dangerous activities.C) hedging risk using futures contracts.D) incor
34、porating a business.Answer: BQuestion Status: Previous Edition37) Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk th
35、e boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the problem ofA) adverse selection.B) moral hazard.C) nondiversifiable risk.D) attitudinal hazard.Answer: BQuestion Status: Revised38) Jenna opened a successful restaurant. One night, after the restaurant ha
36、d closed, a fire started when the electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna also lost profits that could have been earned while the restaurant was closed for repairs. The lost profits are an example ofA) direct loss.B) nondiversifiable risk.C) specu
37、lative risk.D) indirect loss.Answer: DQuestion Status: Revised39) Brad started a pest control business. To protect his personal assets against liability arising out of the business, Brad incorporated the business. Brads use of the corporate form of organization to shield against personal liability c
38、laims illustratesA) fundamental risk.B) noninsurance transfer.C) risk retention.D) objective risk.Answer: BQuestion Status: Previous Edition9Copyright 2011 Pearson Education, Inc.40) ABC Insurance Company plans to sell homeowners insurance in five Western states. ABC expects that 8 homeowners out of
39、 every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually does occur is calledA) objective probability.B) subjective probability.C) objective risk.D) subjective risk.Answer: CQuestion Status: Previous Edi
40、tion41) Williams Company installed smoke detectors, a sprinkler system, and fire extinguishers in its new manufacturing facility. These devices are all examples ofA) loss control.B) noninsurance transfer.C) risk avoidance.D) risk retention.Answer: AQuestion Status: Previous Edition42) Tyndal Product
41、s Company produces cereal. The company has entered into contracts to deliver 500,000 boxes of cereal during the next 18 months. The company is concerned that the prices of two ingredients, corn and wheat, may increase over the next 18 months. The company used grain futures contracts to hedge the pri
42、ce risk associated with these commodities. Tyndals use of hedging illustrates which risk management technique?A) noninsurance transferB) risk avoidanceC) risk retentionD) risk assumptionAnswer: AQuestion Status: Previous Edition43) Cathys car hit a patch of ice on the road. The car skidded off the r
43、oad and hit a tree. The presence of ice on the road is best described as a(n)A) peril.B) subjective risk.C) physical hazard.D) indirect loss.Answer: CQuestion Status: Previous Edition10Copyright 2011 Pearson Education, Inc.44) Jim and Paula Franklin started a dry cleaning business. The business may
44、be successful or it may fail. The type of risk that is present when either a profit or loss could occur is calledA) pure risk.B) subjective risk.C) nondiversifiable risk.D) speculative risk.Answer: DQuestion Status: Revised45) Ben is concerned that if he injures someone or damages someones property
45、he could be held legally responsible and required to pay damages. This type of risk is called aA) speculative risk.B) liability risk.C) nondiversifiable risk.D) property risk.Answer: BQuestion Status: Revised46) MLX Drug Company would like to market a new hypertension drug. While the Food and Drug A
46、dministration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDAs test result, MLX abandoned its plan to produce and distribute the drug. MLXs reaction illustratesA) risk avoidance.B) hedging.C) risk transfer.D) risk retention.Answer:
47、AQuestion Status: Previous Edition47) ABC Health Insurance Company sells health insurance in one state. Recently, that states legislature passed a law forbidding health insurers from considering an individuals health history when selecting applicants to insure. This change in law will increase the p
48、ossibility of unprofitable results for ABC. This type of hazard is an example ofA) physical hazard.B) legal hazard.C) moral hazard.D) attitudinal hazard.Answer: BQuestion Status: Revised48) All of the following are characteristics of the liability risk that most people face EXCEPTA) a lien may be pl
49、aced on your income and assets to satisfy a legal judgment. B) substantial legal expenses may be incurred defending the claim.C) there is no upper limit on the amount of the loss. D) owning liability insurance eliminates the possibility of being held legally liable. Answer: DQuestion Status: Previous Edition11Copyright 2011 Pearson Education, Inc.49) Which of the following statements about chance of loss and risk is (are) true?I. If the chance of loss is identical for two groups, the objective risk must be the same. II. Two individuals may perceive differ
