Principles of Risk Management and Insurance 13th edition by George Rejda test bank

A) I only
B) II only
C) both I and II
D) neither I nor II
Answer:  C
Question Status:  Previous Edition
43) Cathy's car hit a patch of ice on the road. The car skidded off the road 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:  C
Question Status:  Previous Edition
 
44) Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called
A) pure risk.
B) subjective risk.
C) nondiversifiable risk.
D) speculative risk.
Answer:  D
Question Status:  Previous Edition
 
45) Ben is concerned that if he injures someone or damages someone's property he could be held legally responsible and required to pay damages. This type of risk is called a
A) speculative risk.
B) liability risk.
C) nondiversifiable risk.
D) property risk.
Answer:  B
Question Status:  Previous Edition
 
46) MLX Drug Company would like to market a new hypertension drug. While the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA's test result, MLX abandoned its plan to produce and distribute the drug. MLX's reaction illustrates
A) risk avoidance.
B) hedging.
C) risk transfer.
D) risk retention.
Answer:  A
Question Status:  Previous Edition
 
47) ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual’s credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of
A) physical hazard.
B) legal hazard.
C) moral hazard.
D) attitudinal hazard.
Answer:  B
Question Status:  Revised
48) All of the following are characteristics of the liability risk that most people face EXCEPT
A) a lien may be placed 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:  D
Question Status:  Previous Edition
 

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 differently the risk inherent in a given activity.
A) I only
B) II only
C) both I and II
D) neither I nor II
Answer:  B
Question Status:  Previous Edition
 
50) A risk that affects only individuals or small groups and not the entire economy is called a
A) diversifiable risk.
B) pure risk.
C) speculative risk.
D) nondiversifiable risk.
Answer:  A
Question Status:  Previous Edition
 
51) Which of the following is an example of a commercial risk?
A) the risk of insufficient retirement income
B) the loss of business income
C) the risk of premature death
D) the risk of being unemployed
Answer:  B
Question Status:  Previous Edition
 
52) A special form of planned retention by which part or all of a give loss exposure is retained by the firm is called
A) hedging.
B) self-insurance.
C) passive retention.
D) noninsurance transfer.
Answer:  B
Question Status:  Previous Edition
53) The production facility for ABC Manufacturing is located in a flood plain. Although the risk of flood is low, ABC's risk manager is concerned that a flood could damage the plant and equipment. He received bids on flood insurance from two insurance agents, but decided the cost of coverage was too high relative to the risk. So he did not purchase flood insurance. Which risk management technique is ABC using with respect to the risk of flood?
A) active retention
B) noninsurance transfer
C) passive retention
D) avoidance
Answer:  A
Question Status:  Previous Edition
 
54) A student who has skipped many classes and not studied the course material was surprised to learn there was a test when he showed-up for class. The student's mental uncertainty about whether or not he will pass the test is called
A) objective risk.
B) objective probability.
C) subjective probability.
D) subjective risk.