Exam 4: Advanced Topics in Risk Management

RST Company has production facilities in Salt Lake City and Cleveland.The probability that in any given year a fire will damage the production facility in Salt Lake City is 5 percent.The probability that in any given year a fire will damage the Cleveland production facility is 4 percent.What is the probability that BOTH production facilities will be damaged by fire in any given year?

Which of the following statements is (are)true with respect to the time value of money? I.Money received today is worth more than the same amount of money received in the future. II.The present value of a future amount is greater than the future amount.

Terrorists attacked the World Trade Center on September 11,2001.The attack simultaneously created large losses for life insurers,property insurers,workers compensation insurers,health insurers,and liability insurers.What name is given to an event that simultaneously creates large losses in several lines of insurance?

Millie is risk manager of JKL Company.She is considering an investment in a loss control project.The project will cost $40,000.Assuming a 10 percent discount rate,the present value of the future cash flows that this project will generate is $60,000.What is the net present value (NPV)of this project?

Some events cannot occur together because the occurrence of one event makes the occurrence of the second event impossible.Such events are called

Which statement is (are)true with respect to enterprise risk management programs? I.They address traditional property,liability,and personnel loss exposures. II.They do not address financial risks.

Which statement is (are)true concerning catastrophe models? I.Businesses other than insurance companies use catastrophe models. II.Catastrophe models are able to precisely predict disaster occurrences and loss values.

An integrated risk management program is a risk management program which combines

Jane is risk manager of ABC Manufacturing Company.She is trying to decide whether to self-insure her company's workers compensation exposure or to purchase insurance.Jane would like to use regression analysis to predict the number of workers compensation claims that will occur next year.The number of claims will be the dependent variable in the regression.All of the following would be reasonable independent variables to use EXCEPT

Which of the following statements is (are)true regarding investment returns and the underwriting cycle? I.Investment returns have no impact upon the underwriting cycle. II.Investment returns can lengthen the duration of a soft market by offsetting underwriting losses.

A grid charting the potential frequency and severity of losses is called a

A company has a fleet of 200 vehicles.On average,50 vehicles per year experience property damage.What is the probability that any vehicle will be damaged in any given year?

A comprehensive risk management program that addresses an organization's pure risks,speculative risks,strategic risks,and operational risks is called a(n)

Mid-States Beef is a commercial feedlot business.Currently,the company has over 10,000 cattle in feedlots.Mid-States is concerned that the price of corn,the grain fed to the cattle,will increase significantly.The risk that the price of corn may increase and harm the profitability of Mid-States Beef's operations is a(n)

All of the following are financial risks which may be faced by business organizations EXCEPT

The process of determining which set of investments in plant and equipment to undertake is called

Which of the following statements is (are)true regarding the net present value of a capital investment? I.Net present value does not consider time value of money. II.A positive net present value represents an increase in value to the firm.

A large property and liability insurance company merged with a bank and then acquired a stock brokerage company.This type of merger and acquisition activity is categorized as

Two buildings are located close together at a production facility.The probability that either of these buildings will experience a fire loss is 4 percent.However,if one building has a fire,the probability that the second building will have a fire is 60 percent.What is the probability that both buildings will have a fire?

LMN Insurance Company is concerned about its exposure to hurricane losses for property risks it insured on the Gulf Coast.LMN borrowed money from investors by issuing financial securities.LMN promised to repay the money it borrowed with interest if hurricane losses do not exceed a specified level.If hurricane losses exceed the specified level,LMN will repay less than it borrowed and use the extra money to fund hurricane losses.The securities that LMN issued are