Risk Management and Insurance

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Introduction to Risk Management and Insurance, 10e (Dorfman/Cather) Chapter 1 Introduction to Enterprise Risk Management and Insurance 1) A Pure Risk is defined as: A) an event that offer no opportunity for financial gain B) the chance a loss will occur C) a diversifiable risk D) a contingency that increases the chance of a loss Answer: A Diff: 1 2) All the following are direct losses except: A) a car is stolen B) a house suffers flood damage C) an apartment must be rented after a house is destroyed by fire D) a business loses $100,000 in a law suit Answer: C Diff: 1 3) All the following are direct losses except: A) a house is burglarized B) a store loses $200,000 in sales because a fire closes it down for two weeks C) a corporation must pay $1 million in ransom when its CEO is kidnapped D) an delivery truck needs $15,000 in repairs after a collision Answer: B Diff: 1 4) Which of the following is not an example of a Catastrophic Loss Event? A) Hurricane Katrina B) Death of Michael Jackson C) September 11, 2001 terror attacks D) 2004 Tsunami in the Indian Ocean Answer: B Diff: 1 5) Which of the following is not a method of protection of risk? A) Group insurance plans B) Employee benefits C) Social insurance D) Humanitarian aid Answer: D Diff: 2 6) Defective electrical wiring that may lead to a fire is an example of a: A) pure risk B) non-diversifiable risk C) speculative risk D) physical hazard Answer: D Diff: 2 7) Risk Pooling is an example of: A) a Catastrophic Loss Event B) diversifying risk C) a speculate risk D) applying the risk-return trade-off Answer: B Diff: 2 8) Which of the following is a false statement? A) Risk averse people will pay an insurance premium that is greater than the mathematically fair chance of loss in order to relieve themselves of uncertainty. B) A risk seeker is

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