WESTERN UNIVERSITY COLLEGE
Department of Business Administration
RISK MANAGEMENT AND INSURANCE
Home take Exam (1st)
PREPARED BY: Endalkachew M.
Part I: multiple choices
There are alternative answers for each question. You should select only one answer that
you think is the best and then write the letter of your choice in BLOCK LETTERS in
the spaces provided on the answer sheet.
1. Guide lines for developing checklist items should not be:
A. Simple to understand D. Time consuming
B. Free from ambiguity E. None of the above
C. Short and precise
2. Which of the following is true about speculative risk
A. They occur in loss and no loss C. They are insurable
situation only D. All of the above
B. They occur in loss and gain E. None of the above
situation
3. Which of the following is an example of business related risk
A. Market risk D. All of the above
B. Interest rate risk E. None of the above
C. Purchasing power risk
4. The law of large numbers states that:
A. A large number of people must make claims before an insurance company will
begin to pay out.
B. If a large number of people are exposed to the same risk, a predictable number of
losses will occur during a given period of time.
C. Items that will be covered by an insurance policy must not be above a certain
amount, i.e. the large number which is set by actuaries.
D. If losses from an occurrence are large enough, and insurance company will turn
the policies over to a reinsurance company.
5. Which of the following types of loss exposures are best met by the use of avoidance?
A. low-frequency, low-severity D. high-frequency, high-severity
B. low-frequency, high-severity E. ALL are correct
C. high-frequency, low-severity
6. Which of the following statement is true?
A. Peril is cause of loss/risk
B. Reporting fake insurance claim is an example of moral hazard
C. The more the hazardous condition are, the higher the chance of loss
D. A & B E. A & C
7. One of the following is means of risk transfer
A. Retention D. All of the above
B. avoidance E. None of the above
C. Insurance
8. The kind of risk an organization will face when customers are injured by firms product or through the
company s employees
A. Property risk D. Fundamental risk
B. Personal risk E. Dynamic risk
C. Liability risk
9. Which of the following is a pre loss (preventing) measure of risk?
A. Evacuation (moving) of people from C. Warning posters
flood area D. Fire extinguishers
B. First aid kit E. None of the above
10. An insured individual tendency of causing inflicted damage is best explained by:
A. Peril D. Morale hazard
B. Moral hazard E. None of the above
C. Physical hazard
11. Having a rules such as, every worker should wear safety clothing while they are working in a factory
are examples of:
A. Risk transfer tools D. Loss prevention tools
B. Risk avoidance tools E. None of the above
C. Separation
12. Which of the following condition related to physical hazard
A. A careless driver D. All of the above
B. Ice road condition E. None of the above
C. Intentional loss
Part-II: True or False Questions (1 point each)
Write true if the statement is true or false if the statement is false on the answer sheet provided
1. Static risks are less predictable and controllable than dynamic risk
2. The higher the R&Rn, the higher the risk, meaning variability decreases.
3. Risk measurement is the first and the difficult step in risk management process
4. visit to premises, plants, or processes, locations, departments, and units are not
important to identify risk
5. Under a lease, the tenant may be able to shift to the landlord any responsibility the
tenant may have for damage to the landlord’s premises caused by the tenant’s
negligence. This best explains transfer of property
6. Moral hazard is a condition that originates from the careless act of individuals
7. The more knowledgeable the person is, the more certain it will be concerning the future
events and the higher will be the risk
8. If the total number of possible outcomes cannot be determined, the Poisson probability
distribution can be used
Part III: WORKOUT (10) points
1. The following data were taken from the six years’ experience of XYZ Company. The
data describes the number of cars used, the experienced accident and the total
monetary loss incurred in relation to the accidents.
Year No. of cars No. of accidents Amount of loss
1 10 2 7000
2 15 3 8000
3 18 4 16000
4 22 5 18000
5 30 6 20000
6 40 7 24000
Suppose in the year 7 the number of cars owned by the firm will be increased by 20 from year 6.
Based on the data and information given above calculate:
A. The probability of an accident (p)
B. Expected monetary loss per accident
C. Computing the mean and standard deviation of Accident
D. Determining the Annual Expected Monetary Loss (m)
E. Standard Deviation of Annual Monetary Loss (m):
F. Computing Measures of Risk
i. Risk Relative to Mean, (coefficient of variation)
ii. Risk relative to the number of exposure units
WESTERN UNIVERSITY COLLEGE
Department of Business Administration
RISK MANAGEMENT AND INSURANCE
Home take Exam (1st)
Name_________________________________________
Nahum Abraham
ID. No._____________________________
251/18
Section_____________________________
B
Answer sheet
Part I: Part II:
Multiple choice True/ False
1. D 5. D 9. C 1. FALSE 5. FALSE
2. B 6.E 10. B 2.TRUE 6.FALSE
3.D 7.C 11. D 3. FALSE 7. FALSE
4. B 8.C 12. B 4.FALSE 8. FALSE
Part III: WORKOUT
submission date: April 30, 2020
send your Solution sheet via: endalemar@gmail.com
