# Risk And Its Treatment

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Question 1
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Multiple Choice

## Traditionally, risk has been defined as

any situation in which the probability of loss is one.

any situation in which the probability of loss is zero.

uncertainty concerning the occurrence of loss.

the probability of a loss occurring.

Question 2
Free
Multiple Choice

## Objective risk is defined as

the probability of loss.

the relative variation of actual loss from expected loss.

uncertainty based on a person's mental condition or state of mind.

the cause of loss.

Question 3
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Multiple Choice

## 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?

It would decrease to 1 percent.

It would decrease to 5 percent.

It would remain the same.

It would increase to 20 percent.

Question 4
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Multiple Choice

## Uncertainty based on a person's mental condition or state of mind is known as

objective risk.

subjective risk.

objective probability.

subjective probability.

Question 5
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Multiple Choice

## 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 called

objective probability.

objective risk.

subjective probability.

subjective risk.

Question 6
Multiple Choice

## Which of the following statements about a priori probabilities is correct?

They are subjective probabilities based on ambiguity in the way probability is perceived.
They are subjective probabilities that may vary among individuals because of factors such as age, gender, education, and the use of alcohol.
They are objective probabilities that can be determined by deductive reasoning.
They are objective probabilities that can be determined by subjective reasoning.
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Question 7
Multiple Choice

## An individual's personal estimate of the chance of loss is a(n)

objective probability.
objective risk.
subjective probability.
a priori probability.
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Question 8
Multiple Choice

## A peril is

a moral hazard.
the cause of a loss.
a condition that increases the chance of a loss.
the probability that a loss will occur.
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Question 9
Multiple Choice

## An earthquake is an example of a(n)

moral hazard.
peril.
physical hazard.
objective risk.
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Question 10
Multiple Choice

## Dense fog that increases the chance of an automobile accident is an example of a

speculative risk.
peril.
physical hazard.
moral hazard.
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Question 11
Multiple Choice

## Faking an accident to collect insurance proceeds is an example of

physical hazard.
objective risk.
moral hazard.
attitudinal hazard.
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Question 12
Multiple Choice

## Carelessness or indifference to a loss is an example of

physical hazard.
objective probability.
moral hazard.
attitudinal hazard.
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Question 13
Multiple Choice

## Some characteristics of the judicial system and regulatory environment increase the frequency and severity of loss. This hazard is called

moral hazard.
physical hazard.
attitudinal hazard.
legal hazard.
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Question 14
Multiple Choice

## Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company's cigarettes. The characteristics of the judicial system that increase the frequency and severity of loss are known as

moral hazard.
particular risk.
speculative risk.
legal hazard.
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Question 15
Multiple Choice

## A name that encompasses all of the major risks faced by a business firm is

financial risk.
speculative risk.
enterprise risk.
pure risk.
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Question 16
Multiple Choice

## Which of the following statements about financial risk is (are) true?I)Enterprise risk does not include financial risk.II)Financial risk is easily addressed through the purchase of insurance.

I only
II only
both I and II
neither I nor II
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Question 17
Multiple Choice

## One of the speculative financial risks considered in an enterprise risk management program is the risk of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money. This risk is called

property risk.
financial risk.
strategic risk.
operational risk.
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Question 18
Multiple Choice

## Katelyn was just named Risk Manager 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)

financial risk management program.
enterprise risk management program.
fundamental risk management program.
consequential risk management program.
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Question 19
Multiple Choice

## A pure risk is defined as a situation in which there is

only the possibility of loss or no loss.
only the possibility of profit.
a possibility of neither profit nor loss.
a possibility of either profit or loss.
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Question 20
Multiple Choice